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Evergrande Bond Default Sidestep Calms Asia Traders Nerves

China’s troubled real estate firm agreeing an interest payment plan on a critical bond was a boost for the markets but all eyes are now on the Fed awaiting news about when it will begin tapering its pandemic stimulus programme

The markets responded positively to the political truce in Washington. AFP file photo.

 

Traders’ nerves were soothed on Wednesday by news that troubled Chinese property giant Evergrande had agreed a plan to repay interest on one of its key bonds – avoiding a default that many fear could hammer the domestic and global economy.

It meant Asia’s major markets mostly edged ahead but confidence remains fragile as investors await a crucial meeting of the Federal Reserve, where a timetable to start tapering its vast monetary easing programme could be announced.

That comes against the ever-present backdrop of spiking coronavirus infections and slowing global growth, as well as a brewing battle over the US debt ceiling that, if not resolved, could see a default in the world’s top economy, potentially sparking another financial catastrophe.

 

Read more: China’s Evergrande to Make Domestic Bond Payment, Easing Fears

 

In Asia, eyes were on mainland Chinese markets as investors returned to work from a four-day weekend to catch up with Monday’s rout fanned by feverish talk that one of the country’s biggest developers was close to collapse.

While Tuesday saw a little more stability return to trading floors, there remained a lot of uncertainty and it’s hoped that the government will at some point break its silence and give an idea about how it intends to deal with the crisis.

With debts topping $300 billion and no way to make cash, there had been an expectation that it would not be able to meet its interest obligations on Thursday on two bonds – one offshore and one domestic – which would put it effectively in default.

However, on Wednesday the firm’s property unit Hengda said it had agreed a plan to repay interest on the local note, providing much-needed relief, though there was no news on the overseas payments.

The Evergrande news “will be helpful and hopefully suppress some of the inevitable volatility and downside after the holiday break,” said Gary Dugan, chief executive officer at the Global CIO Office.

But he added: “For confidence to return more meaningfully, it will need the market to see sight of the broad restructuring plans for Evergrande.”

 

‘TEMPRORARY REPRIEVE’

But Jeffrey Halley, an analyst at OANDA, warned: “The coupon payment story is likely only a temporary reprieve with no signals from the Chinese government over what steps, if any, it will take to assist an orderly wind down or restructuring.”

There was some cheer from a huge cash injection into the financial markets by the central People’s Bank of China that eased any liquidity concerns.

The move “suggests that [officials] are monitoring the situation closely and are ready to step in if the economy comes under risk”, strategist Jun Rong Yeap, at IG Asia, said.

Shanghai ended with gains as investors returned from a four-day weekend.  Wellington, Manila, Mumbai, Bangkok and Jakarta all rose, with Sydney also edging up as investors there brushed off news of a rare earthquake that caused damage in Melbourne. 

The Shanghai Composite added 0.40%, or 14.52 points, to 3,628.49, though the Shenzhen Composite Index on China’s second exchange dipped 0.25%, or 6.00 points, to 2,440.05. Hong Kong was closed for a holiday.

 

US UNEASE

Tokyo, Singapore and Taipei ended down. The benchmark Nikkei 225 index lost 0.67% or 200.31 points to end at 29,639.40, while the broader Topix index fell 1.02% or 21.00 points to 2,043.55.

Meanwhile, US lawmakers are struggling to head off growing unease that the government is in danger of running out of cash and defaulting on its own bond repayments next month unless its debt limit is suspended.

Treasury Secretary Janet Yellen has warned such a scenario would cause a “historic financial crisis.”

Oil prices extended Tuesday’s strong gains on signs that US stockpiles had seen a hefty drop last week, lifting demand optimism.

 

MARKETS

Tokyo > Nikkei 225: DOWN 0.7% at 29,639.40 (close)

Shanghai > Composite: UP 0.4% at 3,628.49 (close)

London > FTSE 100: UP 0.9% at 7,042.14

Hong Kong > Hang Seng Index: Closed for a holiday

New York > Dow: DOWN 0.2% at 33,919.84 (close)

 

  • AFP with additional editing by Sean O’Meara

 

Read more:

On AF TV: Evergrande debt crisis explained

Bitcoin Recovers After Evergrande Crisis Sparks Crypto Sell-Off

 

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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