Evergrande sparks global market panic
GLOBAL markets were in turmoil yesterday amid fears that a debt crunch at one of China’s largest property firms could trigger a ‘Lehman moment’, tipping the world economy into crisis.
Shares in Evergrande, a builder of upmarket flats for the Chinese upper and middle class, crashed to an 11-year low on the Hong Kong Stock Exchange amid concerns that the group could default on its loans, with a key payment deadline due this Thursday.
The company’s shares have declined by around 48pc since the end of August, when it first warned of a possible default.
Evergrande is one of the world’s most indebted property developers, with debts totalling £217bn. If it collapses, there are fears that the effects will hit the wider Chinese economy and set off a domino effect across the globe.
The situation bears similarities to US investment bank Lehman Brothers, which catalysed the Financial Crisis when it went bust in 2008.
Signs of ‘contagion’ from Evergrande were already appearing in the Hong Kong markets, with the Hang Seng index hitting a one-year low as panic set in. The Hang Seng mainland properties index, which tracks the Chinese property sector, plummeted to its lowest level in four years.
The fallout reached international markets as the day went on, with the FTSE 100 briefly falling to a six-month low before recovering towards the close. Wall Street, however, was a bloodbath, with the Dow Jones sinking 2.5pc to 33,708 while the S&P 500 dropped 2.6pc to 4318 and the Nasdaq tumbled 3.3pc to 14,551.
Blue-chip stocks with large Chinese business interests were among those hardest hit in London, with insurer Prudential, which has been increasing its exposure to Asian markets, the biggest loser on the FTSE 100, down 8.4pc, or 121p, at 1324p.
UK banks with large Asian operations were also on the slide, with HSBC falling 3.8pc, or 14.35p to 361.7p while Standard Chartered slumped 7pc, or 31p, to 411p.
Meanwhile, there are fears that the implosion of the Chinese property sector will dent demand for commodities, spelling trouble for the mining sector.
Analysts at Liberum have estimated that the industry consumes something like 20pc of the world’s steel, 20pc of its copper, 9pc of its aluminium, 5pc of its zinc and 8pc of its nickel.
These concerns weighed on the FTSE 100 miners, with Anglo American losing 4.7pc, or 120.5p, to 2470.5p while Glencore eased 3.8pc, or 12.4p, to 314.8p.
Rio Tinto fell 2.4pc, or 115.5p, to 4714p, BHP dropped 1.6pc, or 30p, to 1,843.8p and Antofagasta tumbled 3.8pc, or 53p, to 1354.5p. Fears of a slowdown in Chinese demand also hit oil markets, with Brent crude dropping 1.6pc to $74.10 a barrel.