Sensex falls 524 points as Evergrande crisis looms

Fear of impending slowdown in China keeps markets on the edge

MUMBAI: Stock markets in India and around the world were rattled by worries about the contagion risk to the global economy from a potential default by China’s second-largest property developer, Evergrande Group.

Indian stocks fell nearly 1% on Monday, led by metal stocks, as investors feared a slowdown in China, the world’s largest consumer of metal and mining products, will diminish demand.

The BSE metals index fell by nearly 7% as investors dumped mining and metal stocks over worries that Evergrande, the world’s most indebted property developer with close to $300 billion in outstanding debt, was close to defaulting on bond repayments due on Thursday.

The BSE Sensex slipped 524.96 points, or 0.89%, to 58,490.93 on Monday, while the Nifty dived 188.25 points, or 1.07%, to 17,396.90.

Analysts said investors are worried that Evergrande’s default would have a cascading impact on China’s massive housing market, one of the largest steel and allied products consumers. On Monday, India VIX or the volatility index rose 14.84% during the day to close at 17.49.

Evegrande has said that slowing home sales has led to cash flow issues and the situation is unlikely to abate in the foreseeable future.

Besides the fear of a contagion, the forthcoming policy meets of major central banks added to the nervousness as investors feared that monetary policy regulators would start giving cues about tapering their stimulus programmes at their meetings this week.

On Monday, European markets fell to a near two-month low, and Germany’s benchmark index sank 2%.

This week, central banks in the European Union, UK, Japan, Switzerland, Sweden, Norway, Indonesia, the Philippines, Taiwan, Brazil, South Africa, Turkey and Hungary are scheduled to hold meetings to decide on key policy rates and whether to wind down stimulus measures that had ensured easy liquidity across the world markets since March last year.

Stock markets in other AsiaPacific countries also fell. Hong Kong’s Hang Seng index declined 3.3% on concerns about China’s economy. Markets in mainland China, Japan and South Korea were closed for holidays on Monday.

According to Gaurav Dua, head of capital market strategy at Sharekhan by BNP Paribas, the delay in intervention by Chinese authorities to limit the contagion risk is unnerving financial markets globally.

“Though the authorities in Beijing are expected to come out with a bailout package soon, the event could drag down the Chinese economy and, consequently, the global economy and commodity prices. The unfortunate event has come when the global markets are already facing headwinds of tapering of quantitative easing by the US Federal Reserve in the coming months. In India, the run-up to Uttar Pradesh elections could also create some anxious moments for equity investors,” Dua added.

Metal stocks were also dragged down because GST rates on ores and metal concentrates such as iron and manganese were raised, analysts said.