Asian stocks extend losses as concerns over China cloud sentiment

TOKYO – Asian stocks fell on Tuesday, Tokyo down 2% as concerns over heavily indebted Chinese real estate developers weighed on sentiment.

On Monday, US stocks posted their biggest drop since May, with the highly technical Nasdaq composite slumping 2.2%.

Markets were closed Tuesday in Taiwan, Shanghai and South Korea.

In Hong Kong, the Hang Seng fell 0.5% to 23,971.73 as sales from real estate developers slowed.

The Nikkei 225 lost 601.48 points to 29,898.57. The Australian S&P ASX 200 slipped 0.1% to 7,244.80.

Analysts said fears that the damage caused by a real estate crisis in China would spill over into the world were based on memories of past financial crises such as the bursting of the Japanese economic “bubble” or the crisis. subprime mortgages in 2008.

In Japan, this disaster is called the Lehman Crisis for the collapse of Lehman Brothers in 2008 which made the situation worse.

“The whisper is that this could be China’s ‘Lehman moment’. Even with the Chinese markets closing until Wednesday, we are seeing massive sales around the world, ”RaboResearch said.

The S&P 500 fell 1.7% on Monday to 4,357.73, its biggest drop since May. The S&P 500 was emerging from two weeks of losses and is on track for its first monthly decline since January.

The Dow Jones Industrial Average fell 1.8% to 33,970.47. The Nasdaq lost 2.2% to 14,713.90. The Russell 2000 fell 2.4% to 2,182.20.

Tech companies have led the market as a whole to the downside. Apple fell 2.1% and chipmaker Nvidia fell 3.6%.

Airlines were among the few bright spots. American Airlines rose 3% to dominate all S&P 500 winners. Delta Air Lines rose 1.7% and United Airlines added 1.6%.

“What has happened here is that the list of risks has finally become too long to ignore,” said Michael Arone, chief investment strategist at State Street Global Advisors. “There is just a lot of uncertainty at a difficult seasonal time for the markets.”

Concerns about Chinese real estate developers and debt have recently focused on Evergrande, one of China’s largest real estate developers, which appears to be unable to repay its debts.

These real estate companies have been major engines of China’s economy, which is the second largest in the world.

If they fail to repay their debts, the heavy losses suffered by investors who hold their bonds would raise concerns about their financial strength. These bondholders could also be forced to sell other independent investments to raise funds, which could hurt prices in seemingly independent markets.

It’s a product of how global markets have become tightly connected, and it’s a concept the financial world calls “contagion.”

Many analysts say they expect the Chinese government to prevent such a scenario, and that it doesn’t sound like a Lehman-type moment. Still, any hint of uncertainty may be enough to upend Wall Street after the S&P 500 has climbed almost uninterruptedly since October, leaving stocks looking expensive and with less margin for error.

In addition to these concerns, investors are watching to see if the Federal Reserve could ease off on its support for the economy. And heavy government spending to counter the impact of the pandemic has increased the likelihood that Congress will opt for a destructive chicken game before allowing the US Treasury to borrow more money.

The Fed is due to release its latest update on economic policy and interest rates on Wednesday.

In energy trading, benchmark US crude rose 61 cents to $ 70.90 a barrel. Brent crude, the international standard, added 57 cents to $ 74.49 a barrel.

In currency trading, the US dollar added 10 cents to 109.49 Japanese yen. The euro cost $ 1.1740, compared to $ 1.1726.

———

AP Business Writers Damian J. Troise, Stan Choe and Alex Veiga contributed.