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China’s Largest Real Estate Developer Files Bankruptcy

Trent Grinkmeyer in front of stock market with bull background

Trent Grinkmeyer
August 18, 2023

VIX setup for trip to the Moon 🌚!

China's Evergrande Group filed for Chapter 15 bankruptcy protection in a U.S. court.

  • The company referenced restructuring proceedings in Hong Kong, the Cayman Islands and the British Virgin Islands.

  • Evergrande is the world's most indebted property developer and defaulted in 2021.

  • Chapter 15 bankruptcy protection allows a U.S. bankruptcy court to intervene in cross-border insolvency case involving foreign companies that are undergoing restructuring from creditors.

  • Tianji Holdings, an affiliate of Evergrande, and its subsidiary, Scenery Journey, also filed for Chapter 15 protection in Manhattan bankruptcy court.

  • Evergrande's filing comes amid contagion fears that China's property sector troubles could spill over to other parts of the economy.

  • Country Garden, which used to be one of China's largest developers, also struggled to make coupon payments on U.S. dollar-denominated bonds and issued a profit warning.

  • China's massive real estate sector has long been a vital engine of growth for the world's second-largest economy.

  • Evergrande posted a combined loss of $81 billion over the past two years.

  • The bankruptcy filing was signed by Jimmy Fong, who listed himself as a “foreign representative” of China Evergrande Group.

VIX Breakout Setup

The VIX, or the fear index, has been on the rise in recent weeks, setting up a potential breakout.

VIX pricing pattern is showing higher-lows and higher-highs, which is what it does when systematic strategies and consensus hedge fund positioning are off-sides at the same time. This is a sign that volatility is likely to continue to rise in the near term.

The August options expiration (OPEX) is today, which could also add to volatility. OPEX is a time when large hedge funds and other market participants rebalance their portfolios, which can lead to increased volatility.

Overall, the setup for a VIX breakout is in place. Investors should be prepared for increased volatility in the coming weeks.

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