Related to the news around Evergrande: https://www.reuters.com/markets/asia/evergrande-shares-set-open-down-38-amid-uncertainty-over-debt-revamp-plan-2023-09-27
Many, many analysts have predicted the impending doom of China wrt to building ghost cities, unsustainable infrastructure spending, municipal governments taking on huge loans, and an inevitable bubble.
There are plenty of articles arguing so:
NYT: China Is on Edge as Fallout From Its Real Estate Crisis Spreads
Industry report: Why China’s housing policies have failed
Bloomberg: China’s Debt-Fueled Housing Market Is Having a Meltdown, Again
If and when this will happen is a very important question, with widespread consequences and plenty of opportunity to cash in on accurate forecasting.
The question is: will there be a crisis in China in the real estate/housing/construction sector in the next year?
By 27th September 2024
If the crisis is very transient, similar to Covid in US, and everything is back to business as usual by the deadline, it's still counts as "YES"
If the Chinese governemnt takes on insanely huge loans, but prevents the crisis, that does not count as "YES"
I am intentionally vague with my definition of crisis, but here are some things that would cause me to resolve this as YES:
multiple reputable publications (e.g. Reuters, Bloomberg, Al Jazeera) writing about a construction crash, housing bubble popping, etc. Not about impending danger, but about currently ongoing stuff.
multiple large companies like Evergrande declaring bankruptcy
municipal governments defaulting on bonds
sudden drop in stock value in the sector, of at least 30% sustained over a week or more
large drop in real estate value
large drop in new units being built
Related questions
@marktwse Hey, I was inactive and somehow missed your comment.
Very good research! I'll definitely lean on that, come resolution time.
And yes, definitely for this market navigating the resolution criteria is just as difficult as forecasting itself. I thought about different options, but there is no good way to define housing crisis/bubble popping - clear cut and objective. Or at least I couldn't figure it out. I should have addressed developments that were already happening, though.
Nonetheless, it is an important question to try to forecast, even if it's hard to be objective. Literally billions of dollars are on the line.
I hoped for more activity here, even arbitrage with different real-money options.
@marktwse also, regarding what is a sufficient stock index drop, I addressed this in a comment below:
50% drop in new units being built in a given quarter, year over year comparison
30% drop in real estate indices (sustained for more than a few days)
I didn't give precise definitions intentionally, this is really vague and I wanted to leave myself sufficient flexibility. Note that I don't hold any stock in this market.
However, I feel the following numbers are fair:
50% drop in new units being built in a given quarter, year over year comparison
30% drop in real estate indices (sustained for more than a few days)