There is a sharp decline in the European stock market and the Hong Kong Stock Exchange, which marks the beginning of the trading week.
Portfolio manager Christian Tonal at Alfred Berg Asset Management notes that fall has historically been able to offer more offshore corals in the stock market, than the rest of the year.
It’s tempting to say, “What’s new?” September and October are known as the months when the market is vulnerable. There could be many reasons for this. One reason may be that investors are already now beginning to monitor whether companies are able to meet their year-round goals, he says.
At 13.00, the main index fell by about 2.3 percent, while there is a similar decline for the other major indices in Europe.
Borsen last saw a similar drop on July 19, when the benchmark fell 2.39 percent on the day after a sharp drop in oil prices as a result of OPEC+ agreeing to increase oil production.
severe waterfalls
Several of Asia’s largest stock exchanges were closed on Monday, but the Hangseng Index on the Hong Kong Stock Exchange was down more than three percent at the start of the week. Hong Kong-listed Chinese insurance companies and financial institutions have broadly declined.
In Europe, there is a wide decline:
- The Euronext 100 in Paris fell just over 2%.
- Frankfurt DAX fell 2.3 percent.
- And the OMXN40 Nordic index fell by 1.7 percent.
- The Moscow Stock Exchange fell 2.2 percent.
The development in the market can be attributed to the status of EvergrandExperts believe.
The Chinese real estate company is going through a deep crisis with 2.690 billion Norwegian kroner of debt, and it is close to collapse. The company is facing a fateful week with bank loan and bond loan maturities this week. Chief analyst Eric Bruce at Nordea Wealth Management has no doubts that it is the China Evergrand that is making markets tremble on Monday.
– We know the company has debt issues, and that’s what weighs down the market today. Most people think that bondholders need to take some losses. The main concern is China’s rising debt and what that will mean for the global economy, says senior analyst Bruce.
– The company has huge receivables, and if it fails to meet its financial obligations, it could lead to losses on other investments in China, he adds.
Tonal Portfolio Manager Alfred Berg believes the Evergrande crisis could be a test of the resilience of the Chinese financial sector. Like Bruce, the manager points out the high debt ratio in the Chinese business.
– If this is an isolated case, the markets will likely ignore it. No one can say for sure how dangerous this is. In China, the state is the lender of last resort, and the ability of the authorities to control the supply of liquidity is great. Tonal says the ability to implement can hardly be questioned.
Creditors and shareholders affected
Creditors and shareholders have been affected by the crisis, says Kelly Chen, a macroeconomist at DNB Markets. At the same time, it stresses that it is uncertain whether there will be more comprehensive consequences for Evergrande’s payment issues.
Our brokers called for an update on what’s happening with Evergrande, and what the company’s crisis might say to the rest of the market. The company is set to break with the loan terms into the bonds, and now has 30 days to pay the interest on that debt.
Chen thinks the company is more likely to restructure and survive by refinancing its debt, but notes that it looks risky:
The fact that Evergrande had to settle accounts payable earlier this fall by making payments in the form of housing projects, rather than cash, indicates that the company is under severe liquidity squeeze. Markets have also largely started pricing tail risk.
According to Chen, Evergrande’s credit pool is quite broad, but she believes bondholders may be the toughest with the company.
– In addition to bond debt, housing projects are financed by state-owned banks and ordinary consumers. Clients purchased investment products from Evergrande at an interest rate on deposits, and agreed to finance housing construction.
Interest rate meetings in the US and Norway
On Wednesday, the schedule for the US Federal Reserve’s interest rate meeting is set, before the Bank of Norway’s Oystein Olsen delivers a new rate announcement here at home on Thursday. Nordea’s Bruce believes these events are already priced in the market.
In the US, most people expect that there will actually be a decline in bond purchases this year, and it will take a lot for that not to happen. The market also believes in signs that interest rates are already rising this year. Here at home, everyone knows there will be an increase in interest rates, he summarizes.
Tonal also refers to the emergency measures that central banks intensified during the Corona crisis. His measures should not be allowed to live indefinitely, especially in light of the fact that the economy has rebounded.
– Based on corporate reports, earnings also appear to be good and improving. This is important because, in the long run, there is always a link between corporate earnings and stock market evolution, Tunal says.
At 11.45, the price of oil fell by about 2%, the price of a barrel of $ 74. Futures indices related to the major US stock markets are also pointing lower. At the time of writing, Dow Jones futures are down more than 1.5 percent, while the Nasdaq and S&P futures indexes are down more than one percent. (Terms)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.
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