Stock markets from Hong Kong to New York were hit by a major sell-off on Monday, as a massive Chinese real estate conglomerate called China Evergrande Group faces a potentially devastating debt default.
The Dow Jones Industrial Average slumped more than 800 points as of mid-afternoon, while the S&P 500 and Nasdaq also fell sharply.
The Evergrande Group owes roughly $300 billion, and investors fear a default could destabilize the financial system in China, one of the world’s top economies.
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The Chinese company Evergrande has more than $300 billion in outstanding debt and is facing a potential default.
Some experts are comparing the situation to the collapse of Lehman Brothers during the financial crisis of 2007-08.
While it might seem far away, the Chinese real estate bubble could impact your investment portfolio. Here’s what you need to know.
The real estate conglomerate Evergrande owns more than 1,300 projects in more than 280 cities in China, according to its site.
Now, the company is in trouble.
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China Evergrande Centre building, the Hong Kong home for China Evergrande Group
Evergrande has been urgently trying to raise the money to pay back its lenders, investors, and suppliers, but is warning that it may have to default on the billions of dollars it owes.
Earlier this month, the real estate developer also blamed negative media coverage for a decline in property sales, all while protests have broken out outside Evergrande’s offices. The company has an $83.5 million payment due Thursday and another $47.5 million on Sept. 29, according to Reuters.
Evergrande isn’t the only Chinese real estate company facing issues. Credit markets are pricing in the default risks for smaller rivals, and national home sales by value fell 19.7% year-over-year in August, according to The Wall Street Journal. Mark Williams, the chief Asia economist at research firm Capital Economics, told The Journal that Chinese developers have borrowed too much money to expand over the last decade, and now authorities are trying to tighten policy.
[SIZE=6]How does this impact the stock market?[/SIZE]
You may not be familiar with the Chinese housing market, but the repercussions are being felt around the world Monday, as investors who didn’t seem to be fazed by the Evergrande situation in recent weeks finally took notice. Now, the real estate developer is being blamed for sell-offs across the global equity market.
Hong Kong’s Hang Seng index suffered losses Monday as Evergrande’s stock plummeted around 10% on Monday.
Meanwhile, U.S. stocks were hit hard too, with the Dow dropping more than 650 points. The S&P 500 fell 2% and the Nasdaq Composite, 2.6%.
Even crypto investors look to be shedding some risk, with Bitcoin’s price sliding below $44,000 amid the global sell-off.
It’s scary that some analysts are comparing the Chinese property bubble to the housing market crash that devastated the U.S. over a decade ago.
But other experts say these worries are overstated, especially given the possibility of an intervention from the Chinese government.