China’s ills come with $50bn bill

Iron ore fall weighs on shares

INVESTORS wiped $50bn off the local sharemarket on Monday as a rout in iron ore prices continued amid steel production cuts in China.

Global markets were also fretting over a potential collapse of China’s biggest property developer and the outlook for US monetary policy.

In its biggest fall since February, the ASX 200 closed down 155.6 points, or 2.1 per cent, to 7248.2 points after diving as much as 2.3 per cent to a two-month low of 7233.6.

It was the lowest daily close in three months.

After rising as much as 73 per cent from a March 2020 low of 4402.5 points to a record high of 7763.8 points last month, the bourse has since fallen 5 per cent, its biggest pullback since October 2020.

“The slow-motion train wreck of the Evergrande collapse has taken front and centre stage, as the risk of financial contagion in Chinese markets looms large,” said IG market analyst Kyle Rodda.

“It’s a ‘shoot first and ask questions later’ environment, that’s seen volatility exacerbated by the fact that China’s financial markets, along with that of Japan’s, were offline for public holidays.”

Evergrande shares fell 13 per cent in Hong Kong amid expectations that it won’t meet bank interest and bond coupon payments this week and the Hang Seng index dived 3.3 per cent. The big miners and banks did most of the damage to the Australian market. BHP fell 4.2 per cent to $37.53, Rio Tinto fell 3.6 per cent to $95.24 and Fortescue Metals fell 3.7 per cent to $14.70.

Fortescue shares fell 12 per cent on Friday after UBS cut its rating to sell and slashed its target prices for all three miners as it predicted that iron ore would revert to $US65 a tonne.

Commonwealth Bank fell 2 per cent to $100.81 on Monday and Macquarie Group slipped 3.6 per cent to $173.69.

Toll road operator Transurban went into a trading halt, announcing a $4.2bn capital raising so its 50 per cent-held Sydney Transport Partners could take full control of WestConnex in Sydney from the NSW government for $11.1bn.

In the US, consumer confidence data shows consumers remain cautious about the pandemic and inflation.

The US Federal Reserve is expected to reiterate a desire to start reducing its stimulus at its meeting this week.