Fear of infection with China Evergrande triggers a sell-off on the world market

HONG KONG – A wave of fears of Chinese economic growth swept across global markets on Monday as China Evergrande, the country’s most indebted property developer, was on the verge of default and investors worried about the consequences for its domestic and international competitors Commodity prices made.

While Chinese and Hong Kong real estate groups bore the brunt of the sell-off on Monday, the effects were felt in European and US equity markets. China Evergrande, whose debt is nearly a third trillion dollars, faces payment deadlines to banks and bondholders this week.

“The impact of the impending collapse of Evergrande is likely to contribute to China’s continued economic slowdown, which in turn anchors global growth and inflation and dampens commodity prices,” said Phoenix Kalen, strategist at Societe Generale in London.

Evergrande shares fell another 10.2% in Hong Kong and posted annual losses of 84%. The Hang Seng Property Index fell 6.7% to its lowest level since 2016 and the broader Hang Seng Index ended 3.3%. Chinese markets are closed for bank holidays through Wednesday, but Singapore-traded FTSE China A50 index futures fell over 3%

In Europe, the Euro Stoxx 600 index fell over 2% while US S&P 500 futures fell over 1%. The London FTSE 100 slid nearly 2%, with miners leading the withdrawal fearing a slowdown in China could further erode commodity prices.

Iron ore prices fell below $ 100 a ton for the first time in over a year as China’s imposition of further steel production restrictions combined with investor concerns that a slowdown in real estate construction will curb demand for the metal. Copper fell 2%, as did oil.

Global economic growth is closely linked to the fate of China, which was the only major economy to expand last year. In April, the International Monetary Fund forecast that China will contribute over a fifth to the increase in global gross domestic product in the five years to 2026.

As the Chinese economy recovered rapidly from the pandemic-induced slowdown, there were signs that growth was slowing, particularly in the housing market, where activity plummeted in July and further slowed in August.

Evergrande has started offering homes, parking and commercial space to suppliers and retail investors in lieu of default. It faces a bunch of bond coupon payments starting Thursday, and if it doesn’t make the payments within a month it is called a defaulting party.

“Our basis remains that any potential default or reorganization of Evergrande would be carefully managed by the government with limited contagion in both the financial and real estate markets,” said Hui Shan-led Goldman Sachs economists. “It would soon require a clear message from the government to build confidence and halt the spillover effect, the absence of which we believe poses a significant downside risk to growth in the fourth quarter and next year. “

However, economists warned that if a default occurs without clearly “shielding” the effects on other parts of the economy, then the results would be tougher, perhaps up to 4.1% of GDP, if the housing industry and financials collapse tighten.

S&P Global Ratings also said it “doesn’t expect a major systemic event if Evergrande goes down”. However, a statement to customers said that if a disorderly bankruptcy of the group coincided with a deeper market downturn in the industry, the situation could worsen. “This would set a vicious circle in motion. We believe that the sector itself has been experiencing a certain weakness in sales and prices since August and could slide further.”

Shares of Sinic Holdings, a real estate developer in Shanghai, fell 87% before trading ceased. Investors fear the company may struggle to refinance a $ 246 million bond that it will have to repay on October 18 after investors have become angry with the sector. Fitch Ratings lowered its outlook for the company to negative last week.

Large developers in Hong Kong also felt the negative effects. Sun Hung Kai Properties slumped 10%, its biggest drop since 2012, and Henderson Land slumped 13%, with investors also terrified last week by a Reuters report that Beijing warned the territory’s real estate tycoons to “monopoly behavior” no longer tolerable.

China’s largest insurer Ping An even lost 8.4%. The company said Friday that it has no exposure to Evergrande and that its insurance mutual fund has equity investments worth 63.1 billion yuan ($ 9.8 billion) tied to real estate developers that it claims are largely financial be solid.

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