Evergrande crisis unlikely to be China's 'Lehman moment': Citi, Barclays, UBS

Singapore

CHINA Evergrande Group's debt crisis is unlikely to become China's "Lehman moment", according to strategists at Citigroup, Barclays and UBS.

Barclays argues that the market environment isn't similar to what happened during the collapse of Lehman Brothers, UBS says the default levels are pretty low versus the size of China's economy, and Citi expects the policymakers to step in.

"The conditions are simply not in place for even a large default to be China's Lehman moment," Barclays macro strategists including New York-based Ajay Rajadhyaksha wrote in a note on Monday. One would need to see a sharp increase in credit distress away from the real estate sector, banks unwilling to face each other and massive policy mistakes for that to happen, they wrote.

Growing investor angst about Evergrande and a crackdown on China's real-estate sector have caused a chain reaction across global risk assets this week, even ensnaring stocks with less tangible links to China.

S&P Global Ratings warned on Monday that the distressed developer is likely to default if it doesn't get support from the Chinese government.

"Policymakers will likely uphold the bottom line of preventing systematic risk to buy time for resolving the debt risk, and push forward marginal easing for the overall credit environment," Citi analysts including Judy Zhang wrote in a note. Still, some banks may become victims, they noted.

Citi's analysis of banks' loan exposure to high-risk developers suggest credit risk is the highest for China Minsheng Banking, Ping An Bank and China Everbright Bank.

Meanwhile, Bank of Nanjing, Chongqing Rural Commercial Bank, and Postal Savings Bank of China are less vulnerable and "we would see any dip as an enhanced opportunity to buy quality names", the analysts wrote.

Jefferies Financial Group also sees "little chance of systemic risk" from Evergrande and advises investors to buy bank stocks on dips. It added Postal Savings Bank's mainland shares to its top picks, citing the lender's profit outlook and lower exposure to the property sector. Jefferies' other buy-rated stocks include China Construction Bank and Bank of Ningbo, analyst Shujin Chen wrote in a note. BLOOMBERG