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It is the non-COVID and non-inflation risk that has been hiding in the global context for months: an imminent default of the Chinese real estate developer Evergrande Group 3333,
On Monday, this somewhat obscure overseas risk suddenly rocked financial markets from Asia to Europe and the United States, where the three major benchmark stock indexes, the S&P 500 SPX,
Dow industrial DJIA,
and Nasdaq Composite COMP,
Seemed to be heading for the worst one-day drop in more than two months. While it certainly wasn’t the only reason US stocks fell, Evergrande was a factor in investors’ mood not to take risks.
Read: Evergrande fears are driving the stock market down: here’s what investors need to know about the Chinese real estate giant
On one level, Evergrande – which is said to face at least $ 83.5 million in interest payments due Thursday, with a 30-day grace period – is worried about a liquidity squeeze among all real estate companies. Chinese and Hong Kong, as markets quickly turn off access. funding in dollars. On a more macro level, the company’s woes bring China’s large-scale regulatory crackdown on most of its operations to the fore, starting with tech giant Alibaba Group Holding Ltd. 9988,
which shakes confidence in the world’s second largest economy.
China’s crackdown on real estate developers, with no end of the game known, is what undermines the liquidity of thinly traded securities like Evergrande bonds, which are held in passive index funds in emerging markets and separately managed accounts in the United States. United, Europe and Asia. companies.
Some of the companies with large holdings of Evergrande bonds are Ashmore Group PLC ASHM,
and HSBC Holdings PLC HSBA,
both from London; BlackRock Inc. BLK,
based in New York; and UBS Group AG UBSG,
from Zurich.
“The spillover that has taken place in other markets is somewhat noticeable,” Ben Emons, managing director of global macro strategy at New York-based Medley Global Advisors, said by phone Monday. In particular, he said, the selloff in global stocks has been accompanied by lower iron ore prices due to China’s increased restrictions on industrial activity.
Markets will now watch whether the People’s Bank of China injects liquidity “tactically” on Wednesday night, Emons said. The timing for all of this comes as some investors also brace for a potentially hawkish outlook from the Federal Reserve on Wednesday, and many expected a significant pullback in the S&P 500 during September.
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