Inevitable Chinese Financial Implosion Continues to be Postponed by Accommodating Western Financial Institutions

The epic rally in the commodity complex has claimed its first victims, sort of, as the price of nickel saw a cool 250% two-day advance to top $100,000 per ton on the London Metal Exchange, spurring drastic action. This morning, the LME not only halted trading in the commodity but also retroactively cancelled transactions after that move left some brokers unable to cover margin calls. Bloomberg relays that Xiang Guangda, head of Tsingshan Holding Group Co. (the world’s largest producer of nickel and stainless steel) and deemed “Big Shot” by his peers, held a short position equivalent to 100,000 tons, which would suggest mark-to-market losses running well into the billions of dollars.

Even bigger names appear to be entangled in the nickel mess, as the LME reportedly granted an extension to state-owned China Construction Bank subsidiary CCBI Global Markets to meet a margin call resulting from the rally.

While the seizure of key commodity markets commands front page headlines around the globe, China’s slow-motion property disaster quietly continues apace: sales from the 100 largest such companies collapsed by 47% from a year ago in February, following a 39% annual drop in January. Bond prices among the highly leveraged developer cohort endured another sharp selloff this morning, as a default from Yuzhou Group Holdings and downgrades of Logan Group Co. from each of the three largest U.S. rating agencies highlights the extent to which the crisis has spread beyond China Evergrande Group.

Indeed, a gauge of Chinese high-yield dollar-pay bonds now sports an option-adjusted spread of 2,253 basis points, far above the 1,000 basis point pickup which has typically denoted distressed credits. Then, too, Hong Kong’s Hang Seng Index sank below its March 2020 lows yesterday.

As for fallen star Evergrande, which defaulted late last year under the weight of $300 billion in liabilities, insiders now find themselves outside the CCP’s good graces. Bloomberg reports that chairman Hui Ka Yan was disinvited from the Chinese People’s Political Consultive Conference taking place this week, breaking his streak of nine consecutive years at the Beijing conclave. A member of the Communist Party for three decades, Hui was first elected to the CPPCC board in 2008.

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