ETF Idea Will the Evergrande debt crisis threaten China’s | FSMOne SG - Research Highlights

ETF Idea

Will the Evergrande debt crisis threaten China’s Big Four banks?

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• Evergrande is likely to undergo restructuring and creditors of Evergrande can expect to take massive haircuts on their principals.

• We expect the Big Four banks to record increases in loan loss provisions and non-performing loans, but we believe the impact of a real estate market downturn is bearable given their low exposure to real estate developers.

• The Big Four banks have about 70% of their total loans secured with collateral, pledges and guarantees, which will help to cushion against any further defaults.

• From a longer-term perspective, property loan growth is expected to slow down but we believe that the slack left behind by property-related loans could be picked up by several other sectors.

• Investor sentiment is likely to remain depressed in the near term. While we acknowledge that valuations may fall even further, we see more upside potential than downside risks for the Big Four banks, especially since they are trading at an average PB ratio of just 0.4X.

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: ChinaAMC Hong Kong Banks ETF (HKEX:3143), Global X MSCI China Financials ETF (NYSE:CHIX)