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Stock Markets

21 Sept 2021

US Stocks take a fall as China Evergrande Fears Continue to Worry Investors

The Index Today

The US stock market took a tumble on Monday as the Evergrande debt crisis loomed over investors. The performance of the market was ranked as the worse since July, especially for Dow Jones which fell more than 970 points.

The S&P closed down 1.7% whereas the Nasdaq Composite fell 2.2%. According to the White House, the declining performance of the markets were mostly centered on China’s Evergrande which is currently struggling to pay its $300 billion debt.

The company is due to pay interest rates on loans and is required to pay additional interest over $100 million this week. Evergrande saw its shares decline by more than 10% in Hong Kong. But the real question is, why are investors in the US worried of Evergrande in Asia? The answer is simple, entire financial markets of the world are interconnected and any major downfall may have a ripple effect in other economies.

Ryan Detrick, chief market strategist for LPL Financial explained that the Evergrande has assets which can be liquidated to pay off financial debt. The possibility of restructuring should also be considered instead of opting for a default. He said, “we think the odds do favor the Chinese communist government will get involved should there be a default. They are holding out as of now, but the fallout could be too great for them to avoid intervening.”

US stocks have been struggling after a long rally that resulted in stocks going up to record highs in previous months which meant that pullback was somewhat overdue. Evergrande may have some form of effect on the market, but if we look at a bigger picture, the US stock market had a smooth upward sailing and was eventually going to slide down.

Bond yields fell and prices rose as investors opted for a safe-haven path. Bitcoin also showed a decline of around 7% as the markets closed.

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