Evergrande contagion threat hits global markets
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The Hong Kong stock market collapsed on Monday in a decline that spilled over to European stock exchanges as a growing liquidity squeeze at Chinese property developer Evergrande showed signs of spreading beyond the sector.
Chinese and Hong Kong real estate groups were at the center of the market crash, falling to their lowest levels in half a decade amid growing angst over the fate of Evergrande, the world’s most indebted real estate developer .
The group faces obligations of more than $ 300 billion to creditors and other companies, and a critical deadline for paying interest on its offshore bonds looms Thursday.
Evergrande’s Hong Kong-listed shares closed 10 percent lower on Monday at their lowest level since May 2010. The drop underscored concerns about the broader health of China’s real estate sector and triggered a wider sell-off. , sending the Hang Seng Property Index, which tracks a dozen listed developers, down nearly 7%, to its lowest level since 2016.
At 24,099 points, the larger Hang Seng index of Hong Kong closed at its lowest level since October 2020. European markets also fell, the region-wide Stoxx 600 down 1.9% and German and French markets down 2%. London’s FTSE 100 lost 1.6%.
Futures on the S&P 500 fell 1.4%, signaling the sell-off could extend to Wall Street as stock trading reopens in New York. The Vix, the so-called Wall Street fear gauge that measures expected volatility on the S&P, hit 25.5, around its highest level since May 12.
“It’s too early to talk about contagion [from Evergrande] but it is just another data point of what we have already seen in China that deteriorates risk sentiment, ”said Anthony Collard, investment manager for UK and Ireland at private bank by JPMorgan.
Evergrande, whose share price has fallen since he warned of the risk of default last month, said senior executives would face a “severe penalty” after getting prepayments on products from the company. investment, he then told retail investors that he could not repay on time.
Exchanges in Hong Kong indicated that growing fears for the real estate sector were weighing on other developers and financial institutions.
“Evergrande is just the tip of the iceberg,” said Louis Tse, managing director of Wealthy Securities, a Hong Kong-based brokerage firm. Chinese developers are under considerable pressure to repay dollar-denominated bonds, he added, as markets have become nervous about Beijing pushing listed real estate groups to cut housing costs by Mainland China and Hong Kong.
“It also affects the banks – if you have lower house prices, what happens to their mortgages? »Said Tse. “It has a chain effect.”
Shares of Ping An, China’s largest insurer, fell 8.4% on Monday, after closing down 5% on Friday as it was forced to disclose it had no exposure to debt. or to the actions of Evergrande. Ping An has 63.1 billion Rmb ($ 9.8 billion) exposure to the country’s real estate stocks through its 3.8 billion Rmb of insurance funds.
Metal prices also fell on Monday as concerns grew about the impact on commodity demand from a decline in the Chinese real estate market. The real estate sector accounts for about 20 percent of the country’s copper consumption and 10 percent of its nickel demand, according to analysts at Liberum. Copper prices fell 3 percent to $ 9,074 a tonne, while nickel fell 2 percent in morning trading on the London Metal Exchange.
“There are fears. . . that the crisis could spread to other companies in the sector and directly affect the construction and completion of houses, ”analysts at Commerzbank said. “The construction industry is one of the biggest consumers of base metals such as copper and aluminum, as well as steel.
Iron ore prices hit a record high this year, but fell 20% last week – their worst weekly performance since the 2008 financial crisis – after markets digested the impact of government restrictions on production of ‘steel. On Monday, Singapore iron ore futures fell 11.5% to below $ 100 a tonne for the first time in more than a year.
In turn, mining stocks were among the strongest drops on the FTSE 100 during morning trading in London. Anglo American shares fell 8%.
Trade in mainland China was closed for a public holiday.
Additional reports by Henry Sanderson
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