Irish shares were among the biggest fallers in Europe as markets around the world finally started to absorb the potential risks of a looming crisis at China’s most indebted property giant, Evergrande.
World stocks tumbled and the dollar firmed as troubles at property group China Evergrande sparked concerns about spillover risks to the economy, creating a fresh investor worry just as money managers around the world are struggling to predict likely interest rate developments from central banks.
Shares in Dublin were down more than 2pc overall, worse than European peers, with significant drops for a range of internationalised and domestically focused Irish firms. AIB (-4.67pc) and Paddy Power owner Flutter (-4.38pc) suffered some of the biggest drops.
Big names in the export-led sector including CRH (-2.02pc), Kingspan (-2.62pc) and Smurfit Kappa (-3pc) all saw significant drops, while domestically focused names like Bank of Ireland (-2.29pc) and IRes Reit (-3.15pc) came under similar pressure.
In China, shares in Evergrande, which has been scrambling to raise funds to pay its many lenders, suppliers and investors, had closed down 10.2pc in Hong Kong as European markets opened.
The developer’s massive debts of €260bn, roughly equal to Ireland’s national debt, have sparked fears of contagion via the Chinese financial system to the world’s second largest economy and so into the world economy.
Paul Nolte, portfolio manager at Kingsview Investment Management in Chicago, said the concern was Evergrande could be “China’s ‘Lehman moment’”, a reference to the 2008 collapse of the US investment bank that helped turn the so-called ‘credit crunch’ into a wider global financial crisis.
While the Evergrande situation has been rumbling for weeks, fears of a spillover only really started to hit..
A major test comes this week, with Evergrande due to pay $83.5m in interest relating to its March 2022 bond on Thursday.
It has another $47.5m payment due on September 29 for March 2024 notes.
Both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates.
On Wall Street, the Dow Jones Industrial Average fell 466.43 points, or 1.35pc, the S&P 500 lost 1.47pc, to 4,367.87 and the Nasdaq Composite dropped 267.52 points, or 1.78pc, to 14,776.45.
The pan-European STOXX 600 index dropped 1.83pc, with mining stocks skidding.
The sell-off has seen a cumulative $2.2trn (€1.87trn) of value being wiped off the market capitalisation of world equities from a record high of $97trn hit on September 6, according to Refinitiv data.
The latest market falls may well be exacerbated by the recent highs and as well as Evergrande there are wider fears the market had become overvalued based on anticipated ‘lower for longer’ interest rates that are now in doubt.
The US Federal Reserve is due to meet tomorrow as investors look for signs of when it will begin pulling back markets support through its bond purchases.
Additional reporting Reuters