ភាគហ៊ុនអាមេរិកមើលឃើញការធ្លាក់ចុះធំបំផុតក្នុងរយៈពេល ៤ ខែចំពេលមានការភ័យខ្លាចចំពោះក្រុមហ៊ុន Evergrande របស់ចិន

- Worries over Chinese property developers recently centred on the real estate giant, which looks like it may be unable to repay its debts

- Investors are also concerned that the US Federal Reserve could signal this week that it’s planning to pull back some of its support measures

Stocks on Wall Street closed sharply lower on Monday, mirroring losses overseas and handing the S&P 500 index its biggest drop in four months.

Worries about debt-engorged Chinese property developers – and the damage they could do to investors worldwide if they default – rippled across markets. Investors are also concerned that the US Federal Reserve could signal this week that it is planning to pull back some of the support measures it’s been giving markets and the economy.

The S&P 500 fell 75.26 points, or 1.7 per cent, to 4,357.73, it’s biggest drop since May. At one point, the benchmark index was down 2.9 per cent, the biggest decline since last October. The S&P 500 was coming off two weeks of losses and is on track for its first monthly decline since January. The S&P 500 has gone an unusually long time without a pullback of 5 per cent or more.

The Dow Jones Industrial Average fell 614.41 points, or 1.8 per cent, to 33,970.47. The blue-chip index was briefly down 971 points. The Nasdaq fell 330.06 points, or 2.2 per cent, to 14,713.90. The Hang Seng, Hong Kong’s main index, dropped 3.3 per cent for its biggest loss since July. European markets fell about 2 per cent.

“What’s happened here is that the list of risks has finally become to big to ignore,” said Michael Arone, chief investment strategist at State Street Global Advisers. “There’s just a lot of uncertainty at a seasonally challenging time for markets.”

The worries over Chinese property developers and debt have recently centred on Evergrande, one of China’s biggest real estate developers, which looks like it may be unable to repay its debts.

The fear is that a potential collapse there could send a chain reaction through the Chinese property-development industry and spill over into the broader financial system, similar to how the failure of Lehman Brothers inflamed the 2008 financial crisis and Great Recession. Those property companies have been big drivers of the Chinese economy, which is the world’s second-largest.

If they fail to make good on their debts, the heavy losses taken by investors who hold their bonds would raise worries about their financial strength. Those bondholders could also be forced to sell other, unrelated investments to raise cash, which could hurt prices in seemingly unrelated markets. It’s a product of how tightly connected global markets have become, and it’s a concept the financial world calls “contagion”.

Many analysts say they expect China’s government to prevent such a scenario, and that this does not look like a Lehman-type moment. Nevertheless, any hint of uncertainty may be enough to upset Wall Street after the S&P 500 has glided higher in almost uninterrupted fashion since October.

Besides Evergrande, several other worries have been lurking underneath the stock market’s mostly calm surface. In addition to the Fed possibly announcing that it is letting off the accelerator on its support for the economy, Congress may opt for a destructive game of chicken before allowing the US Treasury to borrow more money and the Covid-19 pandemic continues to weigh on the global economy.

Regardless of what the biggest cause for Monday’s market swoon was, some analysts said such a decline was due. The S&P 500 has not had even a 5 per cent drop from a peak since October, and the nearly unstoppable rise has left stocks looking more expensive and with less room for error.

All the concerns have pushed some on Wall Street to predict upcoming drops for stocks. Morgan Stanley strategists said on Monday that conditions may be ripening to cause a fall of 20 per cent or more for the S&P 500. They pointed to weakening confidence among shoppers, the potential for higher taxes plus inflation to eat into corporate profits and other signs that the economy’s growth may slow sharply.

Even if the economy can avoid that worse-than-expected slowdown, Morgan Stanley’s Michael Wilson said stocks could nevertheless drop about 10 per cent as the Fed pares back on its support for markets. The Fed is due to deliver its latest economic and interest rate policy update on Wednesday.

Earlier this month, Stifel strategist Barry Bannister said he expects a drop of 10 per cent to 15 per cent for the S&P 500 in the final three months of the year. He cited the Fed’s tapering of its support, among other factors.

So did Bank of America strategist Savita Subramanian, as she set a target of 4,250 for the S&P 500 by the end of the year. That would be a 4.1 per cent drop from Friday’s close.

Technology companies led the broader market lower. Apple fell 2.1 per cent and chip maker Nvidia dropped 3.6 per cent.

Banks posted big losses as bond yields slipped. That hurts their ability to charge more lucrative interest rates on loans. The yield on the 10-year Treasury fell to 1.31 per cent from 1.37 per cent late Friday. Bank of America fell 3.4 per cent.

Oil prices fell 2.3 per cent and weighed down energy stocks. ExxonMobil fell 2.7 per cent.

Smaller company stocks were among the biggest losers. The Russell 2000 fell 54.67 points, or 2.4 per cent, to 2,182.20.

Airlines were among the few bright spots. American Airlines rose 3 per cent to lead all the gainers in the S&P 500. Delta Air Lines rose 1.7 per cent and United Airlines added 1.6 per cent.

Cryptocurrency traders also had a rough day. The price of bitcoin fell nearly 8 per cent to US$43,717, according to Coindesk.

Investors will have a chance for a closer look at how the slowdown affected a wide range of companies when the next round of corporate earnings begins in October. Solid earnings have been a key driver for stocks, but supply chain disruptions, higher costs and other factors could make it more of a struggle for companies to meet high expectations.

As Evergrande totters, cracks in stressed Chinese developers widen as rating outlook dims and borrowing costs jump

Spotlight is on Guangzhou R&F and Fantasia Holdings following a downgrade in their rating outlooks.

A measure of offshore borrowing costs for junk-rated Chinese companies climbed above 15 per cent last week from 10 per cent in June: ICE data.

China Evergrande Group’s liquidity crunch is stoking concerns other developers may also feel the squeeze from higher borrowing costs as lenders turned more cautious about the nation’s weakest borrowers.

The effective yield on bonds sold by Chinese junk-rated companies, a measure of funding cost, jumped last week to 15.8 per cent, according to an index compiled by Intercontinental Exchange, up from 10.5 per cent on June 30. The 226 bonds in the index, dominated by property names, have lost 7.4 per cent on average this month, taking the decline this year to 15.4 per cent.

The increase in yield and widening risk premium showed investors are demanding more compensation to own the securities issued by borrowers with weak credit ratings.

Since China stepped up its scrutiny on developers with its “three red lines” leverage targets in August last year, the taps have dried up for some industry delinquents including China Evergrande. Other companies that failed the test included Guangzhou R&F Properties and Sichuan Langang, according to a report published by Beike Research Institute in August.

“The worst part is that not only China Evergrande is collapsing, but also other Chinese home builders are drowning in the tsunami caused by it,” said Zhou Chuanyi, a credit analyst at Lucror Analytics in Singapore. “For companies with large amounts of maturing debt, a couple of months of liquidity drain could be devastating.”

Since fellow Shenzhen-based peer Kaisa Group became the first Chinese developer to default on a dollar-denominated debt, a stream of firms including Macrolink, China Fortune Land, Yida China, Tahoe Group and Oceanwide Holdings have followed suit. The market has dismissed them as so-called idiosyncratic cases, with little industrywide fears.

The next spotlight could fall on stressed credits including Guangzhou R&F and Fantasia Group after their downbeat sales performance and recent credit-rating downgrades.

Fitch revised the outlook on Guangzhou R&F to negative on Monday. Its most-active dollar bonds due in November 2022 have declined to about 73 cents on the dollar from above par three month ago, when Evergrande’s latest debt woes intensified.

Like Evergrande, Guangzhou R&F has been trying to offload its residential, hotel and logistics assets to generate cash. The firm held 29 billion yuan (US$4.5 billion) of cash, including 16 billion yuan of restricted ones on June 30, according to its interim report. Its short-term debt, or borrowing due for repayment within 12 months, stood at 52 billion yuan.

Home sales, its primary source of liquidity, was described as “disappointing” by analysts at Jefferies. The developer had only achieved half of its 150 billion yuan annual sales target after seven months, the brokerage said.

“Home sales would be extremely tough in the next half especially for those developers that have been flagged with possible problems,” said Yan Yuejin, a director at E-house China Research and Development Institute in Shanghai. “Homebuyers would particularly stay away from their projects after they see the Evergrande struggle.”

S&P Global Ratings separately cut Shenzhen-based Fantasia Group’s outlook to negative on Tuesday. The developer’s most-active dollar bonds due in July 2022 have declined to 58 cents on the dollar from about 97 cents in March. Its June 2024 notes fell by about half to 49 cents.

Guangzhou R&F is getting an HK$8 billion (US$1.03 billion) cash support from an executive director and a substantial shareholder over the next two months, it said in a stock exchange filing on Monday. The first loan of HK$2.4 billion is expected to arrive on Tuesday, it added.

Fantasia, founded by former vice-president Zeng Qinghong’s niece in 1996, has US$762 million of offshore bonds maturing this year and another US$1.15 billion due in 2022. It only had 10 billion yuan (US$1.55 billion) of cash as of June, according to S&P.

Bond yields are at heightened levels, said Guo Fan, analyst of S&P leading the report. This could prevent the company from selling new debt in the market, she added.

The negative outlook was due to pressure emanating from developers with debts issues, Fantasia said in an email reply to the Post. The company itself has no liquidity issue and has “already prepared the fund” to redeem its bonds due in October, it said, adding that it had obtained a HK$1.1 billion (US$142 million) financing from Chiyu Bank in June.

“The company has been actively dealing with the debts,” the firm’s spokesperson said in the email. “Between May and July 15, the company has repurchased US$83.8 million offshore bonds while the controlling stake holders bought US$22.1 million corporate bonds, showing the company’s proven liquidity and our determination on deleveraging. It plans to keep buying back its bonds from the market, it added.

The constrained access is reducing developers’ sales, liquidity and cash flow and raising refinancing risk, especially for financially weak developers, Moody’s said in a report. Lenders and investors will continue to favour mid- to large-sized and financially sound developers, it added

The rating company revised the outlook on the Chinese property sector to negative on tightened funding access earlier this month.

“Investors have hesitated on picking up Chinese property bonds because of the recent saga,” said Kenny Chan, chief financial officer of Zhenro Properties, a Chinese home builder. “When the panic passes, investors will understand choosing a healthy home builder is better than choosing those with high yields.”