Global equities came under pressure yesterday as the Evergrande crisis weighed on the markets. The major Chinese real estate developer warned that it may not be able to repay on time, a statement that accelerated the decline of its shares amid a broad-scale sell-off that risked spilling over into other sectors.
Shares of Evergrande were trading around $30 in 2019 but have now closed at the lowest level since 2010 as the risk of default is higher than ever.
While some analysts believe that the exposure from Evergrande is fairly distributed among banks and the Chinese economy, others are seeing this as the tip of the iceberg which could lead to other leveraged developers defaulting and going bankrupt. This remains a scenario that could lead to bigger and more nerve-racking losses, according to some traders.
While Evergrande accelerated the decline, global markets have been grinding lower for the past several sessions as traders book profits and look to reposition at lower prices.
The Dow Jones has dropped from the mid 35,000s to a recent low just above 33,600, posted yesterday. The Nasdaq also dipped over 800 points and now trades around 15,100. Euro Stoxx 50 held the 4,000 area after around a 6% dip from recent highs.
At the same time, a rush towards safety-linked assets saw bond prices moving higher with 10-year Note yields down to around 1.31%. This was also the case for the German Bund where yields dipped to -0.32%.
Given the globalization of trading and financial markets, it’s no surprise that one company could have a severe effect on the markets, even for a short while. Evergrande is one example, and while the outcome is not clear on what could happen next, it’s reminiscent of the 2008 crisis which caught many people off-guard and saw the markets sharply lower amid selling that turned into a lightning chain effect.
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