Investors grow bored of contagion risk

Market Updates

Stocks fall, only to rebound 

Global stocks sank during the early parts of last week – as investors worried over the threat of contagion – stemming from the still unfolding Evergrande situation.

The short of it: Evergrande Group – one of China’s largest real estate companies – has made headlines in the last few weeks as concerns over the firm’s ability to service its massive $300 billion debt pile grows.

Should the firm collapse, the concern is not just for China’s frothy property sector, but the consequences it may have for the financial sector, the resources space, consumer confidence, etc. These impacts may not just be isolated to China either, with the core worry being that any substantial issues with Evergrande may have global repercussions.  

As investors grew more concerned over the contagion risk last week, US, UK, and Australian stock indices fell sharply last Monday. On that day, the ASX200 fell 2.1%, the S&P 500 dipped 1.7%, and the FTSE 100 came off just 0.86%. In contrast to that skittish action on Monday, equities generally rebounded as the week wore on, as those fears abated.

A small matter of $83.5 million remains

Evergrande’s position remains decisively tenuous. The company missed a US denominated bond payment of $83.5 million, due last Thursday, and simply didn’t mention it.

The market will likely be looking for answers – read, reassurance – when Asian and subsequently US trade resumes this week.

It should be noted that there is a 30-day grace period on the bond. Should the firm not make payment within that period however, the bond would be in default. Chinese regulators have urged the property group to avoid such an outcome.

Despite all this, US stocks finished out last week higher, with the broad-based S&P 500 gaining 1.29%, while the tech heavy NASDAQ rose 1.96%. At those levels, both benchmarks continue to flirt with all-time highs, despite the Evergrande induced anxiety. 

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