Why the Evergrande rumours should not put you off emerging market debt

Caution pays – misconceptions do not

When a note began circulating in late September that claimed to show Chinese property developer Evergrande begging the local government in Guangdong for help in averting a cash crunch, it seemed to confirm many of the worst fears about Chinese corporate debt: low governance standards, excessive amounts of leverage and a lack of transparency make this asset class more of a gamble than an investment.

To some extent, this view is understandable when looking at a company such as Evergrande. Real estate represents a significant portion of the Chinese corporate bond market and as the largest property developer in the country - with $120bn of debt - Evergrande is often regarded as a benchmark name for the asset class. As a result, when rumours emerge that a company like this has run into trouble, the impact can be felt throughout the rest of the market. Yesterday's downsized Evergrande equity placement news was no exception. Yet this ignores an important point: concerns about the debt ...