Evergrande turmoil to worry, not wreck, global markets

Significance

Evergrande's troubles have increased concern about China's all-important housing market, as Beijing seems intent on reducing excessive leverage in the real-estate sector. Global markets are already unsettled by the threat to the global recovery posed by the Delta variant of COVID-19 and the possibility of inflation prompting faster-than-expected monetary tightening.

Impacts

• Contagion beyond Chinese housing should be very limited: illustrating this, China’s equity market has remained resilient.
• Slower growth in China will reduce global demand for exports and add to the concerns about manufacturing and services activity slowing.
• Global financial conditions are likely to remain extremely accommodative, supporting stocks amid mounting concerns about lofty valuations.