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META DATA ANALYSIS
Evergrande likely a non-issue as investors started exiting in February

Evergrande likely a non-issue as investors started exiting in February

Evergrande’s debt was in the spotlight this week. There was marked interest in the story from even outside the financial press. TikToks were made (a whopping of 7.4 million views just for #evergrande) and Google searches for Evergrande spiked.

Last Updated: ‎‎‎‎‏‏‎ ‎
November 17, 2021

This week’s update is co-authored with Hui Si Tan (Data Analyst)

Evergrande, Everdebt or Everdefault

Evergrande’s debt was in the spotlight this week. There was marked interest in the story from even outside the financial press. TikToks were made (a whopping of 7.4 million views just for #evergrande) and Google searches for Evergrande spiked.

However we believe that Evergrande will be a non-issue for the markets. This is because, just like the proverbial Elvis, our investors have already left the building. In fact they started exiting way back in February 2021 and had almost completely exited both Evergrande Bonds and Equities by May-June this year(see chart below).

Essentially the current situation seems to have been widely anticipated and evasive action taken well in advance of the ‘train wreck’.

Most of the positions from Evergrande were exited in Feb and June this year

Do increased Google searches foretell selling?

Using Evergrande as an example, we have conducted a small analysis on our data against Google search trends for the period Feb-June this year. Very interestingly we found that Google searches spiked just before the selling (see chart below)

Google searches for Evergrande spiked just before we saw the selling

This could imply that raking of information is conducted before executing any decision to sell off any asset related to Evergrande. (Due diligence is important!).

Selling preceded a sharp fall in prices

If we superimpose the Google search trends and our investor selling onto the prices of Evergrande’s shares (3333 HK) a very interesting pattern emerges (see chart below)

This newsletter is not in the business of forecasting future prices or trends. However there seems to be a clear correlation between a fall in prices with a spike in Google searches and Investor selling

In 2020, 13 companies, including Tsinghua, defaulted their debt. With the Chinese government’s track record of (so far) not bailing out privately owned companies, we will see if Evergrande be added to the ever seemingly growing “Companies that defaulted” list or will the government bail them out?

Financial media has been tom-toming that Chinese companies are highly-leveraged. Whether this leads to a debt crisis or not, is something that remains to be seen and will be keenly watched.

Signs of life seen in the Equity Markets

In our previous update, purchase activity was dormant for the week, where there was zero purchases in the equity market. Equity purchases are now back, where higher proportion of stocks from the Diversified, Financial, and Industrial industry are being purchased

Conclusion (tl;dr)

  • Uncertainty of Evergrande’s ability to pay its debt
  • Investors are now buying into the equity market

Please note that this newsletter is just a data analysis of actual investor behaviour and does not constitute investment advice in any form.

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