Thread by @jnordvig

It is exactly a month since Evergrande was the only thing anybody could talk about.

Hence, it is a good time to recap market dynamics since Sep 20.

Where is the contagion sticking, and where have we recovered (many places, but not all)

THREAD

First, the Chines currency has substantially OUTPERFORMED over the past month. While the EUR and the JPY are down 2-4% vs the USD, the CNY is up around 1% against the USD.

This fits with how they want their currency to behave 'reserve currency like'.

https://twitter.com/jnordvig/status/1440850557413982215

Second, while a crisis normally generates yield declines in major markets, this has NOT been the case in China. Chinese 10Y rates are UP over the past month, as expectations for mon easing has been disappointed (and in sympathy with the global trend).

Third, the equity market that was hardest hit around Sep 20, was the Hong Kong market. But even the Hong Kong market is back to where it started, and global equity markets are generally up 1-3% since Sep 1 when contagion effects started (see top table)

Fourth, the area with direct impact of the real-estate tension is in the HY (USD) credit market. Here yields spiked for several weeks, to peak around 20% (yup, that is high!) last week.

(but this index has a very high weight to real estate, it should be noted)

In China (IG) credit, the trends have been much more boring. Yields have generally followed the trend in risk free rates (us swaps shown for reference)

Spreads are 10bp wider since Sep 10, and 5bp wider since Sep 20 (moving just a few bp more than the US CDX IG index, see table)

Firth, even the local real estate (equity) index has bounced, although the trend is much more mixed than global equity

Sixth, Chinese Financials (an obvious place to look for systemic contagion) have bounced back too, recovering all their losses from early September.

This is important for thinking about the credit channel going forward

And finally commodities, the metals that many view as 'China-linked' (iron ore, copper) have been mixed.

Iron ore is down a lot in recent months, but after a crazy run higher in the spring.

And copper is actually back at the highs...

certainly not a broad-based collapse!

All told, global contagion effects (such as to global banks) only lasted a few days, and global equity markets are looking at other stuff now. You really have to zoom in on real-estate specific credit to see dramatic effects. Many other markets have healed over the last month.

China is not like other countries. And its real estate crisis will be handled differently to (including a different role for state banks).

Investors are currently looking elsewhere. In general, it makes sense to focus on real-transmission, as opposed to run-way financial market contagion effects (in a state controlled financial system, why would they allow that?).

I will leave it at that. Contagion is a complex thing, and markets are highly non-linear. What seemed crucial a month ago, now seems irrelevant to many. The truth is probably in between. END.