Asia Stocks Halt Slide After Evergrande Rout But Default Fears Persist

Equities recovered some of their Evergrande crisis losses on Tuesday but investors were still nervously watching the struggling real estate giant as it teeters on the edge of a financial abyss.

Its possible collapse sparked a rout across global markets on Monday adding to an already downbeat mood on trading floors, with dealers also worried about an expected tightening of monetary policy by the Federal Reserve, rising Covid infections and a slowing global recovery.

Meanwhile, a battle in Washington to raise the US debt limit was also fuelling concern that the government could miss payments on its debt obligations, sparking a disastrous default.

Also on AF TV: Evergrande debt crisis explained

Hong Kong-listed real estate firms – which took the brunt of the selling on Monday, tanking more than 10% – managed to squeeze out some gains in the morning as bargain-buyers moved in but there remains a lot of uncertainty.

Attention is now firmly on what happens next in the Evergrande saga, with the firm, wallowing in debts of more than $300 billion, due to pay interest to bondholders on two notes on Thursday.

Most experts expect the firm to default on the payments, though it does have a 30-day grace period afterwards.

Still, analysts said the nervousness on markets comes from a lack of clarity from leaders in China, which was observing a national holiday on Monday and Tuesday.

Evergrande’s woes have been exacerbated by strict new rules introduced by Beijing to rein in runaway debt at the country’s developers, essentially cutting off the firm’s ability to finish its properties and make cash.

‘BEIJING SILENCE’

“Even though most people don’t expect Evergrande to collapse all of a sudden, the silence and a lack of major action from policy-makers is making everyone panic,” Ding Shuang at Standard Chartered said. “I expect China to at least offer some verbal support soon to stabilise sentiment.”

The Hang Seng Index added 0.51%, or 122.40 points, to 24,221.54. Mainland Chinese markets were closed for a public holiday.

Henderson Land, New World Development, Sino Land and Sun Hung Kai Properties all rose, while Macau-based casino operators also enjoyed gains after last week’s crash fuelled by plans for a government crackdown on the industry.

But Evergrande, which has fallen more than 80% this year alone, ended further in negative territory.

Sydney, Singapore, Manila, Mumbai and Bangkok also rose, though Jakarta dipped and Wellington was barely moved.

But Tokyo lost more than 2% as traders returning from a long weekend played catch-up with Monday’s global sell-off.

FED SUMMIT

The benchmark Nikkei 225 index plunged 2.17% or 660.34 points to end at 29,839.71, while the broader Topix index fell 1.70% or 35.62 points to 2,064.55.

Aside from Evergrande, focus this week is on the Fed’s latest policy meeting, with observers predicting it will set out its timetable for tapering the vast bond-buying monetary easing programme that has been a key driver of a global recovery for more than a year.

Officials have flagged they will begin winding back this year as they look to temper surging inflation but the prospect of the punch bowl being removed is tempering that rally.

All three main indexes on Wall Street ended well in the red on Monday. There is growing concern that US lawmakers will not reach an agreement to raise the country’s debt ceiling to keep the government running and pay its bills, with Republicans against the move.

Treasury Secretary Janet Yellen warned in an article for The Wall Street Journal that a default would “likely precipitate a historic financial crisis that would compound the damage of the continuing public health emergency.”

Bitcoin fell to its lowest level since early August, touching $40,237 before bouncing back slightly, having been swept up in the global sell-off on Monday.

MARKETS

Hong Kong – Hang Seng Index: UP 0.5% at 24,221.54 (close)

Tokyo – Nikkei 225: DOWN 2.2% at 29,839.71 (close)

London – FTSE 100: UP 1.1% at 7,677.02

Shanghai – Composite: Closed for a holiday

New York – Dow: DOWN 1.8% at 33,970.47 (close)