On Monday, the stock market in Hong Kong fell sharply, spreading to European exchanges as an escalating liquidity issue at Chinese property developer Evergrande appeared to be spreading beyond the sector.
Chinese and Hong Kong property businesses were at the heart of the market downturn, with shares plummeting to their lowest levels in more than a decade amid growing concern over Evergrande, the world's most indebted property developer.
The company owes creditors and other firms $300 billion (€255 billion) and a significant interest payment deadline on its offshore bonds approaches on Thursday.
On Monday, Evergrande's Hong Kong-listed shares plunged as much as 18.9%. The dip heightened fears about China's real estate sector's overall health. It sparked a more significant sell-off, sending the Hang Seng Property Index, which tracks a dozen publicly traded developers, down over 7% to its lowest level since 2016.
The broader Hang Seng index in Hong Kong plummeted 3.5 percent, bringing the benchmark's year-to-date loss to nearly 12 percent. European markets also fell, with the Stoxx 600 index down 1.7% and markets in Germany and France falling 1.9 percent and 2%, respectively. The FTSE 100 index in London fell 1.3 percent.
When equities trading resumed in New York, the S&P 500 futures fell 1%, indicating that the selling could move to Wall Street. The Vix, Wall Street's "fear gauge" that measures predicted volatility on the S&P 500, touched 24.5, its highest level since May 12th.
“It's too early to talk about contagion [from Evergrande], but it's just another datapoint on what we've already seen in China that's souring risk sentiment,” said Anthony Collard, head of JPMorgan's private bank's UK and Ireland investments.
Evergrande, whose stock has plummeted since it warned of a default risk last month, said senior officials would face "severe punishment" for getting early redemptions on investment products. It later told ordinary investors it couldn't repay on time.
According to Hong Kong trading, other developers and financial institutions were being dragged down by the property sector's rising anxieties.
“Evergrande is just the tip of the iceberg,” said Louis Tse, managing director of Hong Kong-based brokerage Wealthy Securities. He noted that Chinese developers were facing significant repayment pressure on dollar-denominated bonds. Markets were concerned that Beijing would press listed real estate companies to lower home costs in mainland China and Hong Kong.
“How does this affect the banks? What happens to their mortgages if property prices fall?” Mr. Tse explained. “It creates a chain reaction.”
Ping An, China's largest insurer, had its stock drop as much as 8.4% on Monday after being required to reveal that it had no debt or equity exposure to Evergrande. Ping An's Rmb3.8tn of insurance funds have Rmb63.1 billion (€8.3 billion) exposure to the country's real estate stocks.
Iron ore prices, which touched a high this year but fell this week as markets processed the impact of government steel production limitations, have been impacted by signs of a downturn in China's property industry.
Last week, iron ore prices fell 20%, their worst weekly performance since the 2008 financial crisis. For the first time in more than a year, iron ore futures in Singapore plummeted as much as 11.5 percent to below $100 per tonne on Monday.
As a result, mining stocks were among the worst performers on the FTSE 100 at the London open, with Anglo American down 6%.
FTSE China A50 index futures traded in Singapore plummeted as high as 4.3 percent despite mainland China's exchanges being closed for a public holiday. – The Financial Times Limited 2021 Copyright