Asian markets struggled on Friday, with Hong Kong and Shanghai tumbling as property giant Evergrande’s silence over a bond payment fuelled uncertainty among investors concerned that its potential collapse could spill over into the broader economy.
Investors were unable to track a surge on Wall Street that followed news the Federal Reserve plans to start tapering its vast monetary easing programme within months, which observers took as a signal of confidence that the world’s top economy is well on the right track.
A more hawkish tilt by the British and Norwegian central banks hinted at a similar outlook.
Traders are keeping close tabs on the battered real estate firm, with no sign that it had paid interest to overseas bondholders on a note due Thursday. While the firm has a 30-day grace period to stump up before it is considered in default, the lack of information is keeping investors anxious.
Markets were sent spinning at the start of the week by fears that the company – one of China’s biggest developers in the crucial property sector – would go under and drag others with it, in turn jolting the domestic economy and possibly beyond.
An announcement that it had agreed a plan to pay up on a local bond payment soothed panicked investors, while they have also taken solace in expectations that Beijing will not let the firm completely go to the wall, instead stepping in to restructure it.
Regulators on Thursday urged the firm – which is more than $300 billion in debt – to do whatever was necessary to avoid a near-term default on its offshore bonds, concentrate on finishing building projects and repay individual investors.
Meanwhile, reports said its electric car unit failed to pay some staff or several equipment suppliers.
There has been no definitive comment from China’s leaders on how they intend to deal with the crisis, adding to the uncertainty.
But for now, there is a feeling that there will not be a “Lehman Moment”, such as when the bankruptcy of Wall Street titan Lehman Brothers in 2008 sparked a collapse on world markets.
After a healthy start to the day, investors in Hong Kong and Shanghai dropped out as the weekend approached. Evergrande fell more than 11% in Hong Kong, having surged more than 17% on Thursday.
“The nascent recovery in China markets remains at the mercy of their being no new negative Evergrande headlines,” OANDA’s Jeffrey Halley said.
INDIAN STOCKS AT RECORD HIGH
There were also losses in Sydney, Seoul, Singapore, Wellington and Jakarta but Tokyo led gains, surging more than 2%, while Taipei and Manila also advanced.
Mumbai chalked up a record high, breaking the 60,000 barrier for the first time – the Sensex has more than doubled from its April 2020 low.
Fears over the US debt limit have been playing on traders’ minds as a deadline to raise it approaches.
Economists estimate that failure to extend the limit would see the United States make a historic default on its debt repayments, wipe out six million jobs and slash $15 trillion from household wealth, tanking the economy and threatening a global meltdown.
But US House Speaker Nancy Pelosi said she would have a deal ready to get funding passed by the end of the month.
London, Paris and Frankfurt were all down in the morning.
KEY FIGURES AROUND 0810 GMT
Tokyo – Nikkei 225: UP 2.1% at 30,248.81 (close)
Hong Kong – Hang Seng Index: DOWN 1.3% at 24,192.16 (close)
Shanghai – Composite: DOWN 0.8% at 3,613.07 (close)
London – FTSE 100: DOWN 0.3% at 7,060.95
New York – Dow: UP 1.5 percent at 34,764.82 (close)
• AFP with additional editing by Jim Pollard