Crisis in the making
Nasdaq Composite, S&P 500 and Dow Jones fell sharply on Monday, with the financial sector hardest hit shares of major US banks JPMorgan Chase (JPM), Goldman Sachs (GS) and others fell by 3% or more. The market sees risks in the crisis of Evergrande, China's largest property developer saddled with $300bn in debt.
The U.S. stock market fell sharply on Monday amid "flaring up" worries that the crisis at China's largest construction company Evergrande could hit Chinese banks and the economy hard, affecting U.S. banks and global financial markets.
The Nasdaq Composite, S&P 500 and Dow Jones were down 2.19%, 1.7% and 1.78% respectively at the close of trading on Monday. Shares of five major US banks, JPMorgan Chase (JPM), Goldman Sachs (GS), Morgan Stanley (MS), Wells Fargo (WFC) and Citigroup (C) fell 2.99%, 3.41%, 3.07%, 1.42% and 3.8% respectively.
Investor anxiety around Evergrande began last week when China's Ministry of Housing, Urban and Rural Development told banks that the real estate giant would be unable to repay its debt obligations on 20 September.
Evergrande currently has about $300 billion in liabilities and only about $15 billion in cash, according to an estimate by Swiss bank UBS, this amount represents 6.5% of the total liabilities of China's real estate sector. Evergrande's debt problems worsened last year when Chinese regulators introduced rules restricting borrowing in the real estate sector.
Most experts believe the Chinese government should step in and help resolve the problem for the country's biggest property developer. Evergrande is seeking permission to extend interest payments and extend some loans.
However, amid tighter regulation of China's tech sector, investors worry that Beijing intends to keep changing the rules on the property market and "Evergrande's crisis will go too far".