Stocks tumble as Chinese property developer solvency fears spook already-shaky markets

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Canadian and US stocks saw a broad sell-off in morning trading on Monday, extending an already weak streak for the major indices.

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Concerns about debt-ridden Chinese property developers – and if they could harm investors around the world if they default – are rippling across markets.

The Toronto Stock Exchange’s S&P/TSX Composite Index was down 1.27% and had arguably its worst session since July. Losses were wider across sectors, with energy stocks down 3.3%, as the price of oil declined 1.3%.


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The S&P 500 fell 1.5% in midday trading. The benchmark index has not fallen more than 1% since mid-August. It is also recovering from two weeks of losses and is on track for its first monthly decline since January.

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The Dow Jones Industrial Average fell 495 points, or 1.4%, to 34,086 and the Nasdaq fell 1.7%.

Technology companies led the broader market. Apple fell 1% and chipmaker Nvidia fell 2.7%.

Banks suffered huge losses due to lower bond yields. This hurts their ability to charge more attractive interest rates on loans. The yield on the 10-year Treasury fell to 1.32% from 1.37% late Friday. Bank of America dropped 3.1%.

Utilities and other sectors that are considered less risky are better placed than the rest of the market.

Concerns over Chinese property developers and debt have recently focused on Evergrande, one of China’s biggest real estate developers, which looks like it may be unable to repay its debt.

Many analysts say they expect China’s government to prevent an explosion severe enough to cascade through the market. But any sign of uncertainty could be enough to upset Wall Street, as the S&P 500 has climbed higher in an almost uninterrupted fashion since October.

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“While Evergrande’s position is front and center, the reality is that stock market valuations are very high and the market has enjoyed a break from volatility too long and Monday’s stock market drop is not surprising,” said Wealth’s chief investment officer. David Bansen- management firm The Bansen Group said in a research note.

Hong Kong’s main index, the Hang Seng, dropped 3.3% for its biggest loss since July. Many other markets in Asia remained closed for the holidays. European markets fell about 2%.

Investors are also watching how the Federal Reserve reacts to bumps in the macroeconomic recovery. The central bank has indicated that it will eventually reduce its bond purchases, which has helped keep interest rates low. The timing of that move remains unknown.

The Fed is due to deliver its latest economic and interest rate policy update on Wednesday.

Other concerns for investors include a potentially messy political battle in Washington over US debt limits. House Democrats said Friday they plan to suspend caps on the government’s lending authority this week, and the White House pressured Republicans by warning state and local governments that serious cuts would go ahead if the measure fails in the Senate. .

Canadian equities were on track to break a seven-month winning streak in September as domestic uncertainty related to the federal election added to the tremors in the broader global market and plunging commodity prices.

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Prime Minister Justin Trudeau, who has a minority administration, last month began the vote two years earlier as opinion polls showed him far ahead of the opposition. But he failed to maintain his big lead as unhappiness over the opening call grew. It now appears that either the Liberals or the Conservatives are moving towards a minority government, which will make legislation more difficult to pass.

“We’re all looking forward to the election in Canada today, but there’s a lot going on with the real estate company in China,” said Irwin Michael, portfolio manager at ABC Funds in Toronto.

“It is a very confusing time and it is affecting the market. We still believe that with the glass half full, things will be fine, but in the meantime we will continue to see a lot of volatility,” Michael said.

NFI Group Inc sank 17.1% below the TSX after a slate of brokerages cut their price targets on the stock. Lithium America was the second biggest drop, down 6.9%.

All Canadian issues had four new 52-week highs and 23 new lows, with a total volume of 69.40 million shares.

Associated Press, Reuters, Granthshala Staff

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