Translated by: MOS Translation Group – Snorlax
Zero Hedge issued an article on September 19 warning that Evergrande’s default is imminent, which will trigger a plunge in Hong Kong stocks on Monday, with futures sinking across the board. Evergrande shares exploded 13% and will close at an all-time low and face liquidation and bankruptcy.
Other similar stocks have fallen to varying degrees, such as New World Development and New Gongji Properties, which both fell more than 8 percent, and Sunac China and Cheung Kong Asset, which plunged more than 7 percent. The Hang Seng Real Estate Index has fallen more than 6 percent, the biggest drop since 2020 and the lowest level since 2016. The Hang Seng Index, which encompasses the broader index, also fell 3.5% in early trading to its lowest level since November 2020.
The article noted that while Evergrande plans to make two separate high interest payments on its offshore bonds by the end of September, it will be liquidated on Tuesday in technical default if the interest payment plan is not honored. Chinese authorities have reportedly told major lenders not to expect Evergrande to repay, and a default is almost inevitable.
Bloomberg’s Mark Cranfield comments that the Hong Kong stock collapse can’t be blamed on low liquidity as “the Hang Seng and H-share indexes traded well above their 10-day averages on Monday, while both were down about 4 percent.”
Also, Reuters reported on Sept. 20: World stocks slid across the board on Monday as the U.S. dollar strengthened after Chinese real estate conglomerate Evergrande defaulted on its debts, sparking global concerns about economic spillover risks. The MSCI Global Equity Index fell 2.09 percent, the biggest one-day drop since October 2020. Major Wall Street indexes fell more than 2 percent and European stocks slid in response. U.S. 10-year Treasury yields fell, and gold rose as safe-haven assets were favored.
Regulators warned that Evergrande $305 billion in liabilities could trigger greater risks to China’s financial system if its debt is unstable. Economically sensitive sectors, including financials and energy, were also hit hard. The pan-European STOXX 600 index fell 1.67% as mining stocks slid.
According to Refinitiv, Monday’s selloff cost the world’s stock market capitalization a cumulative $2.2 trillion in value from it’s all-time high of $97 trillion set on Sept. 6.
The Federal Reserve and other central banks will meet later in the week. The dollar index rose 0.061%, while the euro was flat at $1.1725. The offshore yuan weakened versus the U.S. currency, reaching its lowest level in nearly a month.
U.S. crude fell 2.18 percent to $70.40 a barrel, while Brent crude was at $73.99, down 1.79 percent on the day. Spot gold rose 0.4% to $1,761.29 per ounce, recovering from a one-month low.
On the same day, Goldman Sachs’ China analyst Xu Shan posted an article pointing out that even without the Evergrande incident, property transactions had fallen sharply in July and weakened further in August. Meanwhile, market concerns about the “Evergrande incident” continue to rise, with other developers also showing signs of financing difficulties.
Goldman Sachs also estimated the potential impact of an impending property market collapse on China’s economic growth, concluding that it would be bad and terrible. The bank predicts a hit to GDP ranging from slightly more than 1 percent to as much as 4.0 percent. Such an outcome would be devastating for China and the world.
(This article represents the views of the author only)
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