Global stocks attempt rebound from Evergrande-fuelled sell-off

Japan’s Nikkei returned from a market holiday with a drop of almost 2 per cent.
Japan’s Nikkei returned from a market holiday with a drop of almost 2 per cent.PHOTO: AFP

SINGAPORE (REUTERS, BLOOMBERG) - Global stock markets stabilised on Tuesday (Sept 21) as investors grew more confident that contagion from the possible collapse of debt-saddled Chinese property giant Evergrande would be limited.

Investors pointed to the broadly positive market backdrop with central bank money-printing and the recovery in the world economy post-pandemic as reasons to stay bullish.

“Accommodative monetary and fiscal policies and macro recovery are still suggesting a buy-the-dip strategy,” said Angelo Meda, head of equities at Banor SIM in Milan.

Some caution still lingered however, given the simmering worries over the spillover from an Evergrande debt default, as well as a raft of central bank meetings including Wednesday’s Federal Reserve statement that may bring the US central bank a step closer to tapering.

Singapore's Straits Times Index advanced 0.7 per cent to 3,063.20, even as nervous investors await the latest Evergrande developments. The gains were partly owing to traders buying the dips given recent losses in the local market.

Shares in Hong Kong clawed back some of the previous day’s steep losses, with the Hang Seng Index closing up 0.5 per cent.

Evergrande’s own stocks and bonds tumbled further, after S&P Global Ratings said the world’s most-indebted developer is on the brink of default.

Its shares in Hong Kong dropped as much as 7 per cent before finishing down just 0.4 per cent, still settling near a 10-year closing low. Its 8.25 per cent US dollar bond due 2022 fell 0.3 cent to 24.9 cents, leaving it down some 75 per cent since late May. The junk-rated company is the biggest issuer of high-yield notes in Asia.

“We believe Beijing would only be compelled to step in if there is a far-reaching contagion causing multiple major developers to fail and posing systemic risks to the economy,” according to an S&P report dated Sept. 20. “Evergrande failing alone would unlikely result in such a scenario.” 

Mainland Chinese markets were closed a second day for a public holiday.

Japan’s Nikkei returned from a market holiday with a drop of 2 per cent, while Australian stocks rose 0.35 per cent.

Wall Street futures rebounded 1 per cent after the S&P 500 and Nasdaq suffered their biggest daily percentage drops since May on Monday.

S&P 500 futures rose 0.3 per cent following the index’s biggest fall in two months overnight.

Investors fear a messy collapse or liquidation at Evergrande could ripple through China’s property sector at a time when growth in the world’s second-largest economy is already looking fragile.

A major test looms on Thursday when Evergrande bond interest payments are due. Failing to settle the interest within 30 days would put the bonds in default. Evergrande shares fell 4 per cent in Hong Kong, though remained above Monday’s lows.

Regulators have warned that its US$300 billion (S$405.6 billion) of liabilities could spark broader risks to China’s financial system if its debts are not stabilised.

“Whether Evergrande can make payments, and if not, whether the authorities will bail it out - those are the immediate questions,” said Masahiro Ichikawa, chief strategist at Sumitomo Mitsui DS Asset Management. “In the longer term, we could see slower Chinese growth hurting surrounding countries.”

Evergrande chairman Hui Ka Yan told staff that he firmly believes the company will step out of the darkest moment soon, Securities Times reported, citing a company letter. The developer will accelerate full-on resumption of construction to ensure handing over of buildings, it said. An Evergrande spokesperson confirmed the authenticity of the letter.

Evergrande’s saga is coming to a head at a time when liquidity is low amid public holidays in China, Taiwan and South Korea. Chinese authorities previously told major lenders not to expect repayment of interest on bank loans due this week. Interest also comes due Thursday on two of the developer’s bonds.

In the currency market, traders took solace after Hong Kong’s stock markets stabilised. The yuan recovered most of its Monday drop to trade at 6.4700 per dollar.

Cryptocurrencies too found a floor, with Bitcoin bouncing off 1½-month lows.

Evergrande aside, other market tests loom, with central banks spanning the United States, Britain, Japan, Norway, South Africa, Sweden and Switzerland meeting this week.

Nerves ahead of the Fed kept the US dollar from moving much lower, though it notched small losses against the euro and the Aussie.

Ten-year US Treasury yields crept up to 1.3279 per cent even if many analysts now reckon details of the Fed’s taper timeline may not be announced until November.

“Central banks rightly need to think about the ways they withdraw from these historically high levels of monetary accommodation, but the task is being made much more difficult by Evergrande and by fiscal blockages in the US,” GSFM investment strategist Stephen Miller said.

He was referring to US Congressional wrangling over passing a spending package and lifting the Treasury’s borrowing limit.

Central banks will likely be watching gas price moves, with sharp price increases possibly exacerbating inflation risks and hurting the economic recovery. European gas prices, up some 280 per cent this year, slipped a touch after an 11 per centy jump on Monday.

Brent crude prices meanwhile rose by more than 1 per cent, ending days of losses sparked by Evergrande’s troubles.