This is turning out to be the worst day for the S&P and Nasdaq since May. The Dow is on track for its worst day since July.
Shares of Evergrande fell more than 10% in Hong Kong.
Why are global investors so concerned about something happening in the Far East?
Everything in the world of financial markets is intertwined and the huge amount of money borrowed by Chinese companies has long been considered a major threat to the stability of the market. Now investors fear the risk that banks may pose to Evergrande and companies like it.
But regardless of timing, it is not certain that Evergrande’s crisis will become a similar systemic event, according to Ryan Detrick, chief market strategist at LPL Financial.
For one, Evergrande has physical assets that can be sold to help settle its debts, Detrick said. He also expects Evergrande’s US dollar denominated bonds to be restructured – rather than default.
“We think the Chinese will join the communist government if the odds are in its favor,” Detrick said. “They are still holding out, but the repercussions could be too big for them to avoid interference.”
During this, It is not just the contagion that is pushing the market down. US stocks struggled for direction last week and market analysts have long said a correction is needed after a long rally that pushed stocks to record highs.
“On the day of a market downturn, it is easy to look at the nearest headline like Evergrande and attach a cause and effect, but this market has experienced almost no downside volatility for a long period of time and a pullback was long overdue, said David Bansen, chief investment officer at The Bansen Group, in a note to clients.
Yet the ripples were felt across the market. Bond yields fell as prices rose as investors ran for safety. Another risky asset class, bitcoin, also felt some pain, dropping around 8%.
In the commodities world, US oil prices declined 2.1%, while gold prices rose 0.2%.
Granthshala Business’ Laura He contributed to this story.
Credit : www.cnn.com