The case and the threat of Evergrande’s bankruptcy continue to shake up the global and Asian markets. At the same time, the British bank Barclays is getting involved in the luxury sector by monitoring several large companies in the sector, with positive results.
Test day for Evergrande
Despite the rise in Asian equities, investors remain cautious, even worried. At issue is the fragile health of Evergrande, the Chinese property giant on the verge of bankruptcy. Even if fears of a general collapse and contagion to the entire Chinese, and even global, economy are tending to fade, there is still a long and difficult road ahead to resolve the company’s financial problems.
Several signals have helped to ease the situation. On Wednesday, the People’s Bank of China injected no less than $13.9 billion into the banking system to prevent a general collapse. Similarly, the US Federal Reserve announced overnight that it would reduce its monthly bond purchases from November onwards and that interest rate hikes could follow more quickly than expected, announcements that were fairly well received by the financial markets, which closed at values close to those prior to the US Federal Reserve’s announcements.
For Evergrande and its investors, the real showdown is set to take place this Thursday, as the company has to repay $83.5 million in bond interest that is owed to investors. The company is therefore trying not only to reassure investors but also to avoid default on a number of bonds.
Barclays makes a successful start in the luxury sector
The British bank has started its coverage of the luxury sector with a positive view. Observing that the European luxury sector was showing high-quality secular growth, Barclays had been trading at historic valuations for some time. With some hindsight now, the British bank sees several buying opportunities, and has therefore initiated a follow up on LVMH and Kering.
According to Barclays, the luxury sector in Europe is driven by the rise of the Chinese middle class and the interest of the new generations in environmental and social issues, two points on which the companies followed by Barclays have been making efforts for several years.
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