Is China’s $1 Trillion Debt Bubble Bursting?
Investors in China are rushing to unwind leveraged wagers as the country goes through its deepest selloff in 13 months.
For years Chinese investors have been racking up profits by borrowing cheap and investing the proceeds into higher-yielding debt, but it looks like those bond traders are learning a lesson on leverage—the hard way.
“It looks like everybody is cutting their leverage, passively or proactively, as pessimistic sentiment continues to brew,” Wang Ming, COO at Shanghai Yaozhi Asset Management, tells Bloomberg.
That leverage is being turned on its head as bond prices drop and borrowing costs rise to recent highs in the $1.2T market.
The panic comes just months after hedge fund manager J. Kyle Bass—the man who predicted the 2008 crisis—called out China for having a debt bubble four times as dangerous as the one that triggered the Great Recession. [Bloomberg]
