Beijing/Washington: Shares of Evergrande, China’s largest real estate company, have fallen over 10%. Following the company’s decline, Chinese property and banking stocks have plummeted, have had a deep impact on global markets. This, in turn, has caused the US Dow Jones Industrial Average (DJIA) to drop more than 500 points. The stock markets of the US, along with Europe and Asia, have also been hit hard. Analysts fear that the effects of the Evergrande crisis may affect the global economy along with other sectors in China. US website ‘The Street’ has warned that the Evergrande crisis could prove to be a “Lehman moment” for China.
Evergrande, a leading Chinese property developer, has been in trouble constantly over the past few weeks. Foreign financial institutions have downgraded the company’s ratings, and Chinese banks are said to be unwilling to lend further. The company has an outstanding debt of about $305 billion and is claimed to be unable to repay it. Evergrande has to make about $150 million in bond coupon payments this week. However, the company’s shares slumped to as much as 10% on Monday due to reports that the company did not have sufficient funds to pay it.
In the past eight months, shares of Evergrande have dived to an 11-year low, falling by a whopping 85%. It has hit China’s real estate, banking, energy and insurance companies. Hong Kong‘s (Hang Seng) stock index fell as much as 3.3%, closing at the lowest over the past few months. The fall has cost the Sinic Holdings Group, a leading Chinese real estate company, a loss of $1 billion.
The effects of the crisis in China’s real estate sector are emerging globally. US and European stocks fell sharply. The US Dow Jones Industrial Average (DJIA) has dropped as much as 500 points. Furthermore, the UK, France, and Germany stock market indices have declined by 1.5 to 3%. Analysts have warned that the crisis in China’s real estate sector will affect US steel companies as well as Europe’s banking sector.
Jenny Zeng, CFA of asset management company Alliance Bernstein (AB), has warned that the Evergrande slide may hit other sectors of the economy along with China’s real estate sector. Zeng also said that China‘s economy has been consistently taking hits since the past few months and that the Evergrande crisis could intensify it.
US website ‘The Street’ has compared the Evergrande crisis to the failure of Lehman Brothers in the US. The leading US investment banking company went bankrupt due to the subprime mortgage crisis. This bankruptcy was the prime reason that triggered a recession in 2008-09.