Why stock markets are plummeting across the globe? Evergrande collapse explained

Market


World stocks sank Monday as trading floors were gripped by contagion fears from the expected collapse of debt-plagued Chinese property giant Evergrande, with investors also on red alert over spiking wholesale gas costs.

Holidays in Japan, China and South Korea meant trading was thin in Asia. Indian shares slid 1% and the Nifty 50 logged its worst session since July. 

The Stoxx Europe 600 index dropped more than 2%, on track for the biggest decline since July.

Wall Street was headed for a rough Monday, with futures for the Dow Jones Industrial Average down more than 500 points amid a broad fall in global stocks.

Hong Kong shares tumbled amid the biggest selloff in property stocks in more than a year. 

What’s the reason behind the selloff

Global sentiment has been rattled by Evergrande, which has some $300 billion in liabilities, including debt obligations due this week—starting today—that it can’t pay. Evergrande and banks are discussing the possibility of extensions and rolling over some loans

“Contagion risks from the Evergrande meltdown are the prime cause of today’s sell-off,” Markets.com analyst Neil Wilson told AFP.

“It is definitely though a major cause for investor concern right now and it is possible we see further losses.”

Sentiment is also being dented by strong inflation, the Federal Reserve’s plans to taper monetary policy, surging infections with the Delta variant of coronavirus, and signs of weakness in the global recovery.

What is Evergrande

Founded in Guangzhou in 1996, Evergrande, one of China’s biggest developers, is on the brink of collapse as it wallows in debts of more than $300 billion. 

The once-mighty Evergrande Group has long been the face of Chinese real estate, surfing a decades-long property boom to expand into more than 280 Chinese cities as it peddled home-ownership dreams.

But it is now smothered by a $300 billion liabilities burden that has crushed its credit rating, share prices and reputation among a once-adoring public.

Protests against Evergrande

Throughout last week, the concourse outside Evergrande’s mirrored offices in the southeastern city of Shenzhen was occupied by unpaid contractors, angry sales agents and investors — scenes echoed across a country where prolonged protest is rarely tolerated.

Now, as default appears all but inevitable, fears are abounding of a contagion within the Chinese property market — and far beyond.

To prevent Evergrande from going under

The company employs around 200,000 people and generates more than 3.8 million jobs each year.

Despite the growing crisis, the Chinese government has yet to step in to prevent Evergrande from going under.

Chinese policy makers may be able to avoid a financial crisis, but the Evergrande ordeal could still inflict lasting damage to credit conditions and the economy, Societe Generale SA analysts wrote in a note on Monday.

“The repercussions from Evergrande’s prospective collapse will likely contribute to China’s ongoing economic deceleration, which in turn anchors global growth and inflation, and casts a pall over commodity prices,” wrote analysts led by Phoenix Kalen, head of emerging-market strategy in London.

With inputs from agencies

 

 

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