Shares in Evergrande, the embattled Chinese property developer, have reportedly dropped once again as investors contemplate whether the group's immense debt issues would spark a larger sell-off throughout all financial markets.
According to reports, Evergrande shares finished 10.2% down in Hong Kong on Monday, showing slight recovery after plunging at 19% in the morning, reaching an 11-year low.
The firm, China's second-largest developer, owes $300 billion to contractors, investors, and homeowners, pulled the Hang Seng index to its lowest position in over a year.
Share prices of other major Hong Kong property companies, such as Henderson Land and New World Development, also dropped double digits on Monday (20 Sept), amid widespread speculation that Evergrande, which has been hammered by Beijing's crackdown on overly indebted developers, could default on some of its debts this week.
It is anticipated that such a move would have a catastrophic impact on the Chinese economy and beyond.
The contagion impact was most evident in Australia, where the benchmark ASX200 index fell 2.1% on Monday (20 Sept) afternoon as investors dumped stocks in mining firms such as BHP and Rio.
The price of iron ore, Australia's primary export, has dropped by 60% to around $100 per ton since its peak in May, owing to a downturn in the Chinese property and construction industries. If Evergrande fails, the sector's problems are expected to worsen, pushing iron ore down further.
On Monday morning, European stock markets dropped, with the FTSE 100 index falling 1.75% or 120 points, to 6842, the lowest in two months, with mining firms taking a knock. When trading resumes in New York, Wall Street is likewise expected to decline.
According to Russ Mould, investment director at AJ Bell, given China’s role as the world's top consumer of numerous minerals and metals, any slowdown in the country would have enormous consequences for commodity demand. The scenario also has uneasy overtones of 2015, when concerns about Chinese debt triggered a large and widespread market correction.