Growing investor angst about China’s real estate crackdown rippled through markets on Monday, adding pressure on Xi Jinping’s government to prevent financial contagion from destabilizing the world’s second-largest economy.
According to Yahoo News, Hong Kong real estate giants including Henderson Land Development Co. suffered the biggest selloff in more than a year as traders speculated China will extend its property clampdown to the financial hub. Intensifying concerns about China Evergrande Group’s debt crisis dragged down everything from bank stocks to Ping An Insurance Group Co. and high-yield dollar bonds. One little-known Chinese property developer plunged 87% before shares were halted.
Hong Kong’s benchmark Hang Seng Index slumped 3.3%, its biggest loss since late July. The selling also spilled over into the Hong Kong dollar, offshore yuan, and S&P 500 Index futures. Holiday closures in much of Asia may have exacerbated the volatility, traders said.
A big week for global markets is off to a messy start as stocks plunge around the world and haven bids break out. Blame everything from China Evergrande Group’s woes and the collapse in iron-ore prices to fears over the U.S. debt ceiling.
The endgame for creditors to the Chinese property giant has arrived just as traders are in a state of alert before the Federal Reserve’s meeting this week. The Stoxx Europe 600 index dropped 1.9% Monday, on track for the biggest decline in two months, as futures on the S&P 500 test key 50-day support levels.
“There is a very narrow path that markets are treading where the margin of error is very small,” said Colin Finlayson, investment manager at Aegon Asset Management in Edinburgh, who’s paring back a short-duration position in bonds. “Any surprise — be it from China, the spread of the delta variant, or a communication out of the FOMC — will be disproportionate,” he said.
Adding to the bearish tone on Wall Street, Morgan Stanley strategists led by Michael Wilson is out with a warning to clients that the S&P 500 could see a 20% correction on bad news over earnings revisions and economic growth. Meanwhile, CNBC projected futures on the Dow Jones Industrial Average lost 650 points or 1.9%.
S&P 500 futures fell 1.7%. Nasdaq 100 futures dropped 1.7%. If the declines hold after the open, the blue-chip Dow is set for its biggest one-day drop since July 19, while the S&P 500 is poised for their worst sell-off since May.
