The OECD chief economist Laurence Boone spoke about China's potential action regarding Evergrande. In his view, Chinese authorities have the capacity to keep the debt crisis at property developer Evergrande in check and the broader fallout should be limited. Boone points out that if a developer does indeed file for bankruptcy, the impact on the markets will be limited to only a few specific companies.
At the moment, the likelihood of any concrete support from the Chinese government for Evergrande is rather low. China wants to regain control of another sector of the economy, so the sacrifice of the second largest private developer and a slight market turmoil seem to be a small price to pay. Of course, the black scenario would involve a liquidity crisis, but China seems to have ways of reducing that risk.
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Yesterday, the VIX contract (VOLX.US) broke above 25 points, however buyers failed to uphold momentum and the index pulled back. On the other hand, if the Evergrande collapses, the upward move could be really dynamic, although certainly smaller than a year ago during the February-March period. Source: xStation5
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