The S&P 500 yesterday had its worst day since May as a liquidity crisis at one of China’s largest property developers spooked investors.
Shares in Evergrande, the world’s most indebted property developer, closed 10 per cent lower in Hong Kong to hit their weakest level since May 2010. The selling triggered share price falls across Asia, Europe and the US and raised questions about the health of the Chinese property sector and the broader economy.
The sell-off hit the entire market, with just 50 stocks in the benchmark S&P 500 index finishing the day in the green. The index dropped as much as 2.9 per cent in early trading before recovering some of the losses in the afternoon to close down 1.7 per cent at 4,357.73.
The selling eased today in Asia and Europe but shares in Evergrande closed down another 7 per cent in Hong Kong trading as investors braced themselves for a possible default.
Evergrande has obligations of more than $300bn to creditors and other businesses and 778 projects under way in 223 cities. An interest payment deadline on its offshore bonds looms on Thursday.
Meanwhile, the FT is reporting today that executives at the struggling Chinese property developer admitted that billions of dollars raised by selling wealth management products to retail investors were used to plug funding gaps and even to pay back other wealth management investors.
Go deeper: China’s property slowdown is sending chills through the economy, write Thomas Hale in Hong Kong and Sun Yu in Jinan.
James Kynge: Beijing is engaged in a highly delicate exercise, writes our global China editor. It needs to inflict enough pain to show it is serious about reining in reckless lending in the overheated property market but not so much so that it renders one of the most important engines of economic growth moribund.
Five more stories in the news
1. Trudeau wins re-election but fails to secure majority Canadian broadcast networks are projecting Justin Trudeau will win a third term as prime minister but his Liberal party failed to secure enough seats to form a majority in parliament. The Liberals are on course to take 156 seats, up from 155 after the last election in 2019. The Conservatives, led by Erin O’Toole, were projected to win in 122 seats, up from 119.
2. Universal Music shares surge in Amsterdam debut Shares in the world’s biggest music label leapt as much as 40 per cent on their first day of trading on the Euronext exchange in Amsterdam, valuing the company at €45.4bn. Universal’s chief executive Lucian Grainge is in line for a big payout.
3. Shell agrees $9.5bn sale of Permian Basin Royal Dutch Shell has agreed to sell its business in the Permian Basin, the biggest oilfield in the US, to rival ConocoPhillips for $9.5bn in cash. The Anglo-Dutch oil supermajor is under intense pressure to accelerate a shift out of fossil fuels after a court in the Netherlands ordered the company to slash its net carbon pollution by 45 per cent compared with 2019 levels by 2030.
4. Coinbase abandons lending product Coinbase has dropped its plans to launch a new digital asset lending product, bowing to pressure from US securities regulators who had warned that it constituted an unregistered security that would have prompted them to take legal action.
5. Europe weighs aid package to weather soaring gas prices Surging gas and electricity costs are forcing European governments to discuss billions of euros in aid for households and stricken suppliers, as concern mounts over a deepening winter energy crisis.
Yesterday we incorrectly referred to the Canadian Broadcasting Company when it should have been the Canadian Broadcasting Corporation.
Coronavirus digest
Vaccinated passengers will be able to travel to the US from the EU and UK from November, Joe Biden’s administration announced yesterday.
The BioNTech/Pfizer vaccine is safe and triggers “robust” immune responses in children as young as five, the companies said yesterday.
The number of Americans who have died from Covid-19 has surpassed the death toll from the 1918 Spanish flu pandemic.
Treating the growing numbers of unvaccinated patients is fuelling compassion fatigue and resentment among US health workers, writes Patti Waldmeir.
Was Joe Biden right to relax travel restrictions for fully vaccinated foreign passengers? Share your view in our latest poll.
The day ahead
UN General Assembly Joe Biden will address the UN General Assembly for the first time today as he seeks to open a new “chapter of intensive diplomacy” aimed at countering the rise of China. Later, the US president will host UK Prime Minister Boris Johnson at the White House.
Federal Open Market Committee meets The two-day meeting should shed light on the fate of the enormous bond-buying programme the US central bank put in place last year to stabilise financial markets and shore up the economy following the start of the global pandemic.
Earnings round-up With coronavirus still disrupting business, Adobe is expected to continue to show strong revenue growth in third-quarter results. FedEx, a beneficiary of the pandemic-driven ecommerce surge, is set to report first-quarter numbers.
What else we’re reading
Why Aukus is welcome in the Indo-Pacific The Aukus military pact enhances existing ties and creates a network of powers committed to preventing the region falling under Beijing’s domination. Containing China is now the major strategic priority of the US, writes Gideon Rachman.
Garage scientists’ DNA gamble The growing accessibility of gene-editing tools has led to an explosion of unchecked experimentation in biological self-improvement in recent years. Once a quirky subculture, garage scientists’ rogue mindsets are starting to generate consternation among specialists and international bodies.
The hidden cost of powerful buyers and cheap prices There has been a cost to supply chain resilience. A system without slack, where suppliers and workers are stretched to the max by powerful buyers, may be efficient most of the time. But, as we have just discovered, when there is a shock, such a system can quickly fall apart, writes Sarah O’Connor.
Phones, cars and the future The car has proved stubbornly slow to change in more than a century. Similarly, the conventional thinking around smartphones is that innovation has stalled. Yet the more Tim Bradshaw thinks about their evolution, the more he sees parallels that point to the way ahead.
Investment Masterclass with the Naked Trader In the latest episode of the Money Clinic podcast Robbie Burns, better known as the Naked Trader, shares his top tips for getting into share trading. Forget about being a day trader, he says, you need to let the money come in slowly and take a serious, business-like approach if you want to succeed.
Art
At Jeff Koons’s exhibition, Shine, at the Palazzo Strozzi in Florence, the art is not in any of the objects. It’s in the viewer, Koons writes in How to Spend It:
“It’s that sense of the essence of their own potential as a human being. That is what is of value and the only thing that has any relevance. And so, automatically, art becomes this dialogue with the community,” said Koons.
