Opinion – Marcos de Vasconcellos: Retained deposits and mortgage default: the new market drama

Whoever thinks that the news from China that matters most to the financial market is wrong (very much) is related to lockdowns. As much as the effect of the Chinese quarantines on the stock exchanges is felt immediately, they have practically entered the routine of the markets.

The projections of the major players in the market depend on other points that are now starting to worry. Is very.

In addition to closed ports and declines in retail sales, the fear is that China will enter an internal financial crisis and, fulfilling its role as the second largest economy on the planet, cause a global wave.

Last week, the rating agency Moody’s announced that the number of Asian companies whose credit risk was considered from high to very high reached 30.5% in May.

The brand is important for two reasons: it is more than double the percentage recorded last year; and is above the 27.3% reached in May 2009, at the height of the global financial crisis.

And do you remember what caused the 2008 crisis? In short: a wave of mortgage defaults in the United States. Real estate loans were offered by the buckets and, at the other end of the rope, banks sold these credit portfolios to third parties, who offered them as an investment. When debtors defaulted on loans, the snowball effect froze accounts across the planet.

Well, do you know what is worrying the Chinese authorities right now? Defaults on real estate credits!

Of course, since 2008 there have been many changes. WhatsApp didn’t even exist. But let’s take a closer look at what’s happening now in China: Across the country, homebuyers are refusing to repay loans, while builders and developers delay construction.

The housing crisis and credit risk took such proportions that Chinese authorities called emergency meetings with banks to discuss the expected impacts of the boycott of housing credits.

Also in the last week, the case of account holders of four banks that had their finances frozen after the institutions were investigated for fraud drew the world’s attention (with a report in the New York Times).

As if the high financial risk exposed by the case itself was not enough, it took on even more terrible contours when account holders from various places went to protest against the freeze in front of the branch of the People’s Bank of China in Zhengzhou, capital of Honan province, and were chased away by the punching and kicking police.

Chinese GDP data for the second quarter of this year, which has just been released, shows that the economy has grown at the slowest pace since the country was hit by the first outbreak of Covid-19. Property prices fell for the 10th consecutive month.

The IMF (International Monetary Fund) has asked the country to increase spending and monetary support to families, but there is still no definition on the next steps.

The unfolding of events in the Asian giant should determine the market’s appetite in the coming months for inputs such as iron ore, soybeans, oil and Brazilian meat.

The sale of these four products from Brazil to China totaled US$ 54.8 billion (today, around R$ 297.2 billion) in 2020.

Investors in Vale, Petrobras, JBS and other commodity giants on our Stock Exchange must experience moments of tension until it is possible to predict the next chapters of the Chinese “drama” that unfolds.