On Tuesday, Asian stock markets were down due to fears about Evergrande, a Chinese property developer, and the impact on China’s financial system.
The Nikkei 225 index in Japan was down more than 2%, while the Hang Seng in Hong Kong was down 0.8 percent.
The Dow Jones industrial average in the United States closed Monday’s trading 1.8 percent down.
Similar drops were seen in Europe, with Germany’s Dax index falling 2.3 percent and France’s Cac 40 falling 1.7 percent.
On Monday and Tuesday, mainland China’s major stock markets were closed for the traditional mid-Autumn festival.
Despite recent losses, the Nikkei is still up almost 30% from a year ago, while the Hang Seng is still marginally higher.
Concerns that Evergrande, one of China’s largest property developers, is struggling to satisfy interest payments on more than $300 billion in loans prompted the sell-off.
China’s banking regulators have warned that it may result in larger threats to the country’s financial system. Investors are concerned that this may affect large banks that are exposed to Evergrande and similar firms, triggering worldwide market contagion.
It comes as the world economy continues to recover from the coronavirus’s effects.
Fear Has Taken Root In China’s Market
“The prospect of an Evergrande bankruptcy looks to be driving to concerns of China’s own Lehman Brothers moment, with a large spillover throughout the region,” CMC Markets’ Michael Hewson said.
Investors are also concerned that the US Federal Reserve will reaffirm plans to reduce assistance for the US economy this year during its meeting on Tuesday and Wednesday.
Global stock markets have risen as economies have reopened and central banks have pumped billions of dollars into the economy to help it expand.
However, if assistance is removed at a time when the Delta variety continues to stymie recovery, there is a risk of a drop.
Morgan Stanley strategists predict a 10% drop in the S&P 500 index as the Federal Reserve begins to remove its support.
They went on to say that indicators of a stalled recovery may push the drop to 20%.
The Future Is Uncertain
Other experts, on the other hand, downplayed worries of a sell-off, pointing out that September is often a terrible month for equities.
“Overall, September is continuing to live up to its poor reputation as the year’s worst month. But it doesn’t rule out the possibility of a comeback “TD Ameritrade’s top market strategist, JJ Kinahan, stated as much.
Any decline, according to Lindsey Bell of Ally Invest, might be temporary.
“A lot of investing is about separating what’s signal from what’s noise,” she explained. “While there is anxiety about the Evergrande crisis spreading global markets, this situation may just be noise for the long-term investor.”
