Global Markets: World shares skid as China Evergrande contagion fears rise
World shares skidded and the dollar firmed on Monday as investors fretted about the spillover risk to the global economy from property group China Evergrande’s troubles, while eyeing a week packed with global central bank meetings. In a sign of the risk aversion rippling through markets, China sovereign credit default swaps jumped to a near one-year high, while the cost of insuring against European corporate bond defaults leapt to the highest since late May. European stocks slumped 2.3%, on course for their worst session since December, with energy and mining stocks tumbling as the dollar’s jump to near four-week highs crushed commodity prices.
Holidays in Japan, China and South Korea meant trading was thin in Asia, while politics added extra uncertainty with elections in Canada and Germany bookending the week. Shares in China Evergrande plummeted 10.2% after earlier losing as much as 19% to more than 11-year lows. The company’s listed units also fell, as investors worried about the real estate developer’s ability to repay a small portion of its $ 305 billion debt due this Thursday. Evergrande’s troubles added to growing unease about the health of China’s economy after Beijing’s recent crackdown on tech firms.
The Hang Seng index shed 3.3%. MSCI’s broadest index of AsiaPacific shares outside Japan slid 1.7% to its lowest since Aug. 24, with Australia stocks suffering their worst session in nearly seven months, slumping 2.1%. The MSCI All Country World Index fell 0.6%, close to a one-month low and down further from record highs hit earlier this month. “The imminent demise of China’s leading property company raises questions about risks of contagion and possible spillover effects to the economy and the global recovery,” TS Lombard’s Larry Brainard and Jon Harrison wrote in a strategy note.
Beijing will move aggressively to ‘ringfence’ the Evergrande crisis and ensure growth remains on track in 2022, they wrote. China sovereign credit default swaps (CDS) jumped nine basis points (bps) from Friday’s close to 45 bps, the highest since early October, IHS Markit data showed, while the CDS of other emerging market giants, including Brazil and Turkey, also rose to multi-month highs.