Then something very important transpired. Despite all of Beijing’s measures, developer bond yields began rising again. The crisis deepened. China’s apartment bubble is one of history’s greatest bubbles. Its collapse has significant ramifications – for China’s economy and financial system, along with the global economy and the global financial system. There are clear geopolitical repercussions. Crisis dynamics often move at a glacial pace – only to suddenly accelerate at seemingly lighting speed. And crisis dynamics can appear manageable for some time - only to reach a point where fear takes hold that they might be uncontainable. China’s crisis is on such a trajectory.
But here’s what has me really worried. It’s not just Beijing that faces a crisis of confidence. Right now, emerging markets face sinking currencies, de-risking/deleveraging, “hot money” outflows, and a dramatic tightening of financial conditions. And it’s anything but clear what reverses these dynamics. I’ve witnessed a number of EM crises during my career, but never has there been a setup like today’s dominoes all lined up across the globe.
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