Evergrande’s sudden explosion into a potential global financial market crisis

Given the circumstances, it might be surprising, but this sudden event is not related to Covid_19 or to the risks that have been hidden behind the global circumstances during the month. The only one responsible is Chinese property developer Evergrande Group.

Suddenly a mysterious overseas risk came up on the surface and fired up financial markets of Europe, Asia, and the U.S. Top three benchmark indexes of the U.S. ( Dow industrials DJIA, the S&P 500 SPX, Nasdaq Composite COMP) experienced the worst one-day drop during the two months period. For DJIA it was -1.78%, for SPX -1.70%, and for COMP-2.19%. Despite the U.S. stocks slid, Evergrande is thought to be the main factor behind investors’ risk-off mood.

Due on Thursday, Evergrande will face at least $83.5 million in interest payments, which should be paid in 30 days. Markets are rapidly turning off access to dollar funding and because of that Evergrande has raised concerns about a liquidity crisis among all Hong Kong and Chinese property companies.

A few of the firms which have major holdings of Evergrande bonds are BlackRock (of New York), HSBC Holdings and Ashmore Group (of London), and UBS Group (of Zurich).

What should we expect from the future?

An unrevealed end of the crackdown on property developers of China is threatening liquidity from thinly traded securities. Those are held in separately managed accounts at Asian, the U.S., and European financial firms and slowly developing market index exchange-traded funds.

On Monday, The New York-based Medley Global Advisors’ managing director of global macro strategy, Ben Emons said (via phone) that the overflow which is happening to other markets is notable. He explained that because of the stepped-up restrictions on industrial activity by China, iron ore prices were falling. He also said that now markets will be observing the actions of the People’s Bank of China and see whether it will or will not inject liquidity “tactically” Wednesday night.

Is this crisis manageable? This question will probably be answered during the month of September.

Ani is our assistant content manager. She makes sure that all the articles we write on InsideTrade are clear, concise, and easy to understand for our visitors. Thanks to her experience in the financial markets over the last year, she also reports on interesting stories as well.