Dow tumbles 900 points as Wall Street fears turn to China
This is shaping up to be the worst day since last October for the S&P and the Dow Jones. For the Nasdaq, this should be the biggest drop since February.
The White House said it was monitoring the markets, but stressed that Evergrande’s business was “largely focused on China.”
Evergrande shares fell more than 10% in Hong Kong.
Why are global investors so worried about what is happening in the Far East?
Everything is interconnected in the world of financial markets, and the huge amount of money borrowed by Chinese companies has long been seen as an imminent threat to market stability. Today, investors fear the banks’ exposure to Evergrande and similar companies.
But despite the timing, it is far from certain that the Evergrande crisis will turn into a similar systemic event, according to Ryan Detrick, chief market strategist for LPL Financial.
On the one hand, Evergrande has physical assets that could be sold to help pay off debts, Detrick said. He also expects a restructuring – rather than a default – of Evergrande’s US dollar-denominated bonds.
“We think there is a good chance that the Chinese Communist government will get involved in the event of a default,” Detrick said. “They are resisting for the moment, but the fallout could be too great for them to avoid intervening.”
Meanwhile, it’s not just contagion concerns that are pushing the market down. US stocks struggled to move last week, and market analysts have long said a correction was needed after the long rally that pushed stocks to record highs.
“On a market down day it’s easy to look at the closest stock like Evergrande and tie a cause and an effect, but this market has seen almost no downside volatility for a long time and a pullback was expected. for a long time, “said David Bahnsen, chief investment officer at The Bahnsen Group, in a note to clients.
Still, the ripples were felt all over the market. Bond yields fell as prices rose as investors fled to safety. Bitcoin, another risky asset class, also felt some pain and fell about 9%.
Laura He and Jason Hoffman of CNN Business contributed to this story.