Global Stocks Hit by Fears of Potential Evergrande Collapse

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Principal Points

• Global equities slide as the possibility of Evergrande collapse grows larger
• Dow drops nearly 1,000 points but pares back some of it, closes 1.8% lower on Monday

World Shares Tumble as Evergrande Saga Unfolds

Stocks across the major economies globally tumbled on Monday as troubles around Evergrande’s stability intensified. Property giant China Evergrande Group rattled world shares as its potential collapse could be so big it could affect the global financial market. 

Asian equities ended sharply lower on Monday and remained trading to the downside on Tuesday. European shares slipped broadly yesterday with the region-wide Stoxx 600 losing 1.67%. Bourses across the old continent slipped between 0.9% and 2.3%. The DAX stock index in Frankfurt was the biggest decliner among European averages as it lost 358.11, or 2.3%, to close at 15,132.06. 

Additionally, the FTSE100 in London dropped 0.9%, while the CAC40 in Paris dipped 1.74% as the decline in equities was broad-based. 

Wall Street Equities Retrench 

In the US, Wall Street stocks joined the global selloff yesterday as the potential bankruptcy of Evergrande could happen within days if the company does not raise funds to pay its many lenders, suppliers, and investors. The S&P500 fell 1.7% to mark its biggest single-day decline since May 12. Earlier during the day, the broad-based benchmark plummeted nearly 3%. 

The Dow Jones Industrial Average closed down 1.8% for its worst daily performance since July 19. The Dow Jones pared some of its intraday losses as the 30-stock index was down 971 points at its low. The Nasdaq Composite slid 2.2% yesterday. The tech-heavy index was dragged lower by Tesla shares, which lost 3.9%, and Nvidia Corp. stock, which declined 3.6%. 

Evergrande Nears Insolvency

Stocks globally endured their worst day in months after shares in Evergrande closed down 10% during the session in Hong Kong, hitting their worst level since May 2010. 

The Chinese property developer has debts of more than $300bn owned to creditor banks and other businesses. The current reason for concern is the interest payment deadline on its bonds which falls on Thursday.

Buy the Dip Scenario Possible Ahead of the Fed’s Key Update

Amid the selloff, some investors are increasingly optimistic to bet on stocks and other depreciated assets. According to some analysts and market participants, buying the dip might be the better choice for you if you have been waiting for a decline to put more chips on the table. 

Looking ahead, the Federal Reserve would be a key to forming the outlook for stocks. The US central bank begins a two-day meeting Tuesday. The main focus of discussions among Fed officials would be whether to start unwinding monetary policies. 

Since the pandemic began, the Federal Reserve, headed by Jerome Powell, has been injecting as much as $120bn in monthly asset purchases. On that note, the Fed Chair has signalled the economy has reached a state that does not require the full amount of monthly support. Mr. Powell has said US central bankers are largely in agreement to cut the stimulus by the end of the year. 

 As the Fed convenes today, US futures are looking optimistic. Futures contracts tied to the Dow Jones Industrial Average were higher by more than 0.8% ahead of the opening bell. S&P500 futures and Nasdaq futures gained roughly 0.6%, and 0.5% each.

Cryptocurrencies Attempt a Rebound

Cryptocurrencies will struggle to recover from yesterday’s sharp selloff. The crypto market was hit by the same force that knocked global equities as market participants rushed to unload riskier assets. Known for its volatility, bitcoin dropped about 8.5% on Monday to close at $43,500. On Tuesday, bitcoin is trading slightly lower, at $43,000 per coin.