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Asia Markets Rally As Evergrande Pulls Itself Back From The Brink

The struggling real estate firm found a way to meet a bond interest payment deadline calming nerves on trading floors while the Fed’s tapering plan brought some much-needed certainty for investors

Worries about consistently high price rises is forcing central banks to start looking at tightening.

 

Asia’s major markets reacted positively on Thursday as concerns about a collapse of troubled property giant Evergrande receded – for now.

Investors were also cheered by the Federal Reserve’s plan to begin scaling back its ultra-loose monetary policy soon, removing uncertainty over timing that had kept markets on tenterhooks for months.

Hong Kong was among the leaders as it reopened after a midweek break to catch up with news that Evergrande had agreed a plan to repay interest to its domestic bondholders, soothing worries of a default that have raised talk of a hammer blow to the Chinese economy.

And while Wednesday’s statement was vaguely worded – not detailing how much and when it would pay – it was seen as a much-needed positive sign. Attention is now on what it plans to do about repayments to offshore bondholders, which are due on Thursday.

 

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Observers pointed out that even if it fails to meet its obligations, the firm still has 30 days to come up with the cash. However, they will be keeping an eye on how it deals with those dollar-denominated notes.

Hong Kong rose more than 1%, with Evergrande surging about 30% briefly before easing back slightly – though its shares are still down more than 80% this year. There were also gains for other property developers as well as banks with exposure to the firm. 

The Hang Seng Index climbed 1.19%, or 289.44 points, to 24,510.98. But the Shanghai Composite Index rose 0.38%, or 13.73 points, to 3,642.22, while the Shenzhen Composite Index on China’s second exchange added 0.46%, or 11.30 points, to 2,451.36.

Shanghai was also in positive territory, helped by an infusion of $17 billion into financial markets by the People’s Bank of China.

Sydney also added 1%, while Mumbai and Singapore were up even more. Wellington, Taipei, Manila, Bangkok and Jakarta were also higher. Tokyo was closed for a holiday.

 

TAPERING PLAN

The positive start to the day followed a rally of around 1% for all three main Wall Street indexes, where investors welcomed a Fed statement on tapering its vast bond-buying programme.

The central bank said it expects to “soon” be ready to start the wind-down of stimulus put in place at the start of the pandemic that has been a key driver of the global economic and equity rebound.

The world’s biggest economy was now strong enough for the bond-buying programme to be slowed “if progress continues broadly as expected,” it said in a statement after its policy meeting.

“The Fed has officially given notice that if the recovery continues as planned, a moderation in the pace of asset purchases can happen soon,” said OANDA’s Edward Moya, adding that investors “can now completely price in a formal November taper announcement with a December start date.”

However, bank boss Jerome Powell warned US lawmakers to lift the country’s debt ceiling, to avoid the government running out of cash and failing to service its debt obligations, which could lead to a default and spark a financial crisis.

“It’s just very important that the debt ceiling be raised in a timely fashion so the United States can pay its bills when it comes due,” he said. Not paying is “just not something we can contemplate.”

 

MARKETS

Hong Kong > Hang Seng Index: UP 1.2% at 24,510.98 (close)

Shanghai > Composite: UP 0.4% at 3,642.22 (close)

Tokyo > Nikkei 225: Closed for a holiday

New York > Dow: UP 1.0% at 34,258.32 (close)

 

  • AFP with additional editing by Sean O’Meara

 

Read more:

Evergrande Seeks To Reassure Retail Investors As Debt Deadline Looms

China Evergrande to Make Domestic Bond Payment, Easing Jitters

 

Sean OMeara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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