For the first time, a mainland Chinese company has defaulted
on its bonds. Shocklingly, it is a high-flier solar panel maker that
trades in the US market – Suntech Power. Its stock shot up in a classic
parabolic FOMO pattern (FOMO = Fear Of Missing Out), and has now fallen
like a broken windmill blade below the parabolic liftoff. The irony is
that Chinese solar makers have used easy credit to scale up, and
throwing the solar cell market into a huge glut, crushing Western
manufacturers; and now it is coming back to bite the Dragon by its own
tail.
(click to enlarge)
Sure, it could be a one-off, but Chnia’s corporate bond market is
much larger (adjusted for GDP) than the US equivalent and is highly
misallocated due to easy credit and political malinvestment. While
unconnected to the Euro crisis, coming so swiftly after Cyprus, it may
be another harbinger that the wheels may be slowing coming off the
global credit train.
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