21. September 2021 | 10:37 CET
China Evergrande, Desert Gold, Deutsche Bank: What investors need to watch out for now
When the real estate bubble burst in the US more than ten years ago, the crisis was already looming months ahead. Some hedge funds fell to their knees. In addition, there were other indications that only a few market experts heeded. Today, the situation is similar. Many market participants see the fate of the Chinese real estate group Evergrande as an isolated event - similar to the proverbial sack of rice. But the risk of at least a temporary shock is real. We list risks and outline a possible profiteer.
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ISIN: CHINA EVERGRANDE GROUP | KYG2119W1069 , DESERT GOLD VENTURES | CA25039N4084 , DEUTSCHE BANK AG NA O.N. | DE0005140008
"[...] The transaction offers benefits to all parties: Shareholders now have three promising projects in their portfolio. [...]" Bradley Rourke, President, CEO and Director, Scottie Resources Corp.
China Evergrande: Things look bad
China Evergrande's stock has been on a downward spiral since the beginning of the year. While the share still reached prices above EUR 2 in German trading, it is now a penny stock and worth less than EUR 0.30. The background to this is the events in China. In the meantime, Evergrande has accumulated debts of EUR 256 billion. Some interest payments are due this week. If these cannot be met, the Company could slide into bankruptcy. Arguably, the group, which also offers asset management solutions, has offered some customers non-cash assets in exchange for their deposits. In addition, there are said to have been irregularities surrounding these asset management products: Evergrande itself admits that some managers illegally cashed in investment products in advance.
This conglomeration is likely to put Evergrande, at the very least, in dire straits. Rating agencies have already lowered their credit ratings significantly. If the over-indebtedness is accompanied by dubious dealings, the confidence of customers and investors could be shaken. It is by no means certain whether customers will accept the tangible assets on offer. Although the worst-case scenario is the loss of deposits, Evergrande itself does not appear to be in a good negotiating position. For German investors, the crisis in China is so problematic because Chinese mainland companies are often seen as convoluted and non-transparent. While foreign companies and joint ventures with Western companies are closely monitored and strictly regulated, the opposite is true for mainland companies, according to the impression of many people familiar with the processes. A crisis like the current one at Evergrande could have a contagion effect and initially shake up the entire financial market and even the real economy. The Evergrande share is currently not an option.
Desert Gold: Crisis insurance with substance
A typical insurance policy is the share of Desert Gold. Although small companies, in particular, can be just as affected during crisis-like shocks on the capital market, these market phases are usually good buying opportunities. Why? Companies like Desert Gold make their profits in the future. Desert Gold, for example, is about a promising gold project in Mali on the border with Senegal. At 410 sq km, the property is the largest non-producing area in the country. Grades of 16.03 g/t gold over 7 meters describe the property, which is characterized by two high-grade zones. Most recently, the Company acquired a further 30.6 sq km with the Kolomba concession. What is unique about Kolomba is that exploration was last carried out here in 2003. At that time, the gold price averaged less than USD 400.
Desert Gold plans to explore the new area in the coming months and incorporate it into new models and maps in early 2022. Since gold is considered crisis insurance, Desert Gold's stock could be interesting. The Company is advancing its work step by step and definitely has gold in the ground. Especially during upheavals in the financial system, the precious metal is in particularly high demand.
Deutsche Bank: The mood is bad
The Deutsche Bank share is also currently taking a beating. The Company is in the midst of a restructuring: fewer branches and employees are supposed to bring new success to the formerly proud bank. Seeking salvation on the Internet may seem timely, but there is a lot of competition on the web from fintech and other banks. In addition, against the backdrop of current events, the hopeful investment banking sector could even generate future losses. There is as yet no evidence of contagion effects in the wake of the Evergrande crisis. Still, in recent years, it is clear that banks, in particular, have been looking with great commitment for new markets in which returns can be achieved with as little risk as possible. If the share closes trading below EUR 10.40, there is a lot to be said for single-digit prices.
While the China Evergrande share is not a good choice, even for gamblers, investors in banking shares must at least become cautious. While there is no evidence of contagion effects, the nervousness of the markets is apparent. This nervousness often affects companies that may actually profit in the long run. One example is Desert Gold. Investors should look very closely here.