Global Markets Shaken by Concerns on Evergrande Default to US Debt Ceiling
Assets classes slipped globally as Chinese authorities quiet on Evergrande rescue; US treasury secretary on raising US debt limit
Investors turn risk mode on as global tension over the likely default of Evergrande looms across global equity asset classes. The Hang Seng Index fell short of 821.62 points, a drop of 3.30% reaching to the lowest level this month. Real estate stocks saw the highest drop of 6.69% followed by financials stocks of 4.08%.
Chinese authorities earlier told major lenders not to expect repayment of interest from Evergrande due this Thursday. Investors are factoring in a possible collapse as Chinese authorities shy away from signaling rescue. As investors are concerned with liquidity, high yield dollar bonds of Chinese companies dragged down by 2 cents.
Trading of Shanghai based property developer Sinic Holdings Group Co. halted trading after sudden selloff causing price to drop by 87%. Earlier Fitch lowered Sinic’s credit rating to B+.
Market traders are also factoring in uncertainty if the FED would signal a roadmap on asset tapering on Wednesday. It is expected the FED chair will bring the deadline closer.
Sentiment of the market is also hurt as US treasury secretary Janet Yellen earlier called for raising US debt ceiling to avoid a possible default by the US. Her comments included “we would emerge from this crisis as a permanently weaker nation”.
She signaled a chance of default as the treasury exhausts its cash reserve and extraordinary borrowing capacity under the $28.4 trillion debt limit. The house to vote on raising the debt ceiling this week, the debt ceiling crunch might delay the start of asset buybacks by the FED.
Europe’s benchmark index STOXX Europe 600 reached a two months decline slipping by 8.25 index points as the debt crisis mulls over. S&P 500 Futures dropped by 1.31% while Dow Jones Futures dropped by 1.57%. Volatility indicator- VIX Index is up by 20% reaching second highest in five months.
Meanwhile Thailand approved raising the public debt ceiling from 60% to 70%. Selling pressure from the institutions and proprietary traders inched down the index by 22.59 point closing at 1603.06 points.