‘Lehman moment’ fears as debt crisis at Chinese real estate giant Evergrande sparks global market panic
Global markets were in turmoil yesterday over fears that a debt crisis at one of China’s largest real estate companies could trigger a ‘Lehman moment’, sending the global economy plunge into crisis.
Shares in Evergrande, a builder of luxury condominiums for China’s upper and middle classes, crashed to an 11-year low on the Hong Kong Stock Exchange amid concerns the group could default on its loans, with a major payment deadline approaching. Thursday.
The company’s shares have fallen about 48 percent since late August, when it first warned of a potential default.
High-rise buildings: a residential complex in Evergrande in Huaian in the eastern Jiangsu province of China. The builder saw shares crash to an 11-year low amid concerns it could fail to pay its loans
Evergrande is one of the world’s most indebted property developers, with debt totaling £217 billion.
If it collapses, there are fears that the effects will hit the broader Chinese economy and create a knock-on effect around the world.
The situation bears a resemblance to US investment bank Lehman Brothers, which catalyzed the financial crisis when it went bankrupt in 2008.
There were already signs of Evergrande ‘contamination’ in Hong Kong markets, with the Hang Seng index hitting a year-long low as the panic kicked in. The mainland Hang Seng real estate index, which tracks the Chinese real estate sector, plunged to its lowest level in four years.
The fallout hit international markets over the course of the day, with the FTSE 100 briefly falling to a six-month low before recovering towards the end.
Wall Street, however, was a bloodbath: the Dow Jones fell 2.5 percent to 33,708, the S&P 500 fell 2.6 percent to 4318, and the Nasdaq fell 3.3 percent to 14,551.
Blue-chip stocks with large Chinese corporate interests were among the hardest hit in London, with insurer Prudential, which has increased its exposure to Asian markets, the biggest loser on the FTSE 100, down 8.4 percent, or 121p, on 1324p.
British banks with large Asian operations were also on the slide, with HSBC falling 3.8 percent, or 14.35p to 361.7p, while Standard Chartered fell 7 percent, or 31p, to 411p.
Meanwhile, there are fears that the implosion of the Chinese real estate sector will dent demand for commodities, causing spelling problems for the mining sector.
Liberum analysts estimate that the industry consumes about 20 percent of the world’s steel, 20 percent of copper, 9 percent of aluminum, 5 percent of zinc and 8 percent of nickel.
These concerns weighed on the FTSE 100 miners, with Anglo American losing 4.7 percent or 120.5 pence to 2470.5 pence, while Glencore lost 3.8 percent or 12.4 pence to 314.8 pence.
Rio Tinto fell 2.4 percent or 115.5p to 4714p, BHP fell 1.6 percent or 30p to 1843.8p and Antofagasta fell 3.8 percent or 53p to 1354.5p.
Fears of a slowdown in Chinese demand also hit oil markets, with Brent oil falling 1.6 percent to $74.10 a barrel.