China Evergrande crisis rocks markets from Hong Kong to U.S.

HONG KONG/NEW YORK — A wave of fear over Chinese economic growth swept through global markets on Monday as China Evergrande, the country’s most indebted property developer, teetered on the brink of default and investors worried about the consequences for its domestic peers and international commodity prices.

While Chinese and Hong Kong property groups bore the brunt of the sell-off, the impact was felt across European and U.S. stock markets. China Evergrande, whose liabilities amount to almost a third of a trillion dollars, is facing deadlines this week for payments to banks and bondholders.

In the U.S., the Dow Jones Industrial Average finished down 614 points, or 1.8% to close its worst day of trading since July. Caterpillar and Goldman Sachs were the benchmark’s biggest losers on a day when investors were also watching the outlook for the Federal Reserve’s cutbacks to monetary easing. The Dow fell 972 points at its low point before paring its losses toward the end of the session. 

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,” said Phoenix Kalen, a strategist at Societe Generale in London.

The Nasdaq closed down 2.2% and the top three decliners were all Chinese companies: Pinduoduo, Baidu, and JD.com. The S&P 500 finished down 1.7%. It was both indexes’ worst day of trading since May. 

Security personnel barricade Evergrande’s offices in Shenzhen, China. Authorities are keen to prevent the group’s troubles from causing wider economic ripples.

  © Reuters

The Global X MSCI China Real Estate ETF, an exchange-traded fund focused on the Chinese property sector, closed down 5.4% for the day. 

In Europe, London’s FTSE 100 slipped almost 1% with miners leading the retreat on concerns a China slowdown will further erode commodity prices. The Euro Stoxx 600 index fell nearly 1.7%.

Iron ore prices fell below $100 a ton for the first time in over a year, as China’s imposition of more steel production curbs combined with investor concerns that a real estate construction slowdown will cut demand for the metal. Copper declined 2%, as did oil. American steelmaker Nucor had the second-worst performance on the S&P, closing down 7.6%

Global economic growth is closely entwined with the fortunes of China, which was the only major economy to expand last year. In April, the International Monetary Fund projected China would contribute over a fifth of the increase in the world’s gross domestic product in the five years to 2026.

While the Chinese economy recovered swiftly from the pandemic-induced slowdown, signs have emerged of growth losing steam, particularly in the housing market where activity slumped sharply in July and weakened further in August.

Evergrande shares slumped a further 10.2% Monday in Hong Kong, taking losses for the year to 84%. The Hang Seng Property Index tumbled 6.7% to its lowest level since 2016 and the broader Hang Seng Index ended down 3.3%. Chinese markets are closed till Wednesday for…