Global financial markets plunge amid Evergrande contagion fear

Vrasidas Neofytou
Head of Investment Research

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Global financial markets have started the week with heavy losses, as investors worry about whether the looming default of the Chinese conglomerate, Evergrande, marks a Lehman Brothers moment for the world’s second largest economy, sending shockwaves across the world.

Who is Evergrande?

Evergrande is the second largest property developer in China, while it is also invested in electric vehicles, sports, theme parks, and food & beverages businesses across the Asia-Pacific region.

However, the group has become China's most indebted developer, with more than $300 billion worth of liabilities, struggling to repay its retail investors, banks, and bondholders, as well as to complete flats for more than a million homebuyers who paid for their new properties in advance.

How the global financial problem affects Evergrande?

Evergrande’s financial problems have spilled over onto Hong Kong’s stock market, with the company’s share losing more than 80% of its value this year, the broader Hang Seng index has fallen more than 20% in the same period, whilst the local property index fell to its lowest level since 2016.

Contagion has also moved beyond the property sector, with global equities losing more than 3% since last week, while the China-linked Australian and New Zealand dollars have fallen to monthly lows.

Commodity traders are also watching the property crisis closely, as a possible default could burst China’s property bubble and undermine demand for raw materials such as iron ore, copper, and aluminium.

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