Stock markets fell around the world on Monday amid rising fears that a property crisis in China has put the global recovery from Covid at risk.
The S&P 500 index dropped 2.6pc in America, its biggest decline since November, after the debt-laden Chinese property behemoth Evergrande lurched a step closer to collapse under the weight of $300bn (£275bn) of debt.
German and Italian markets both closed down more than 2pc while Paris slipped over 1.7pc. In London, the FTSE 100 ended 0.86pc lower.
Evergrande is one of China’s biggest companies and is backed by many thousands of retail investors, but shares have plummeted more than 80pc this year because of concerns it has drastically overborrowed. The company warned creditors that it is likely to default on loan repayments this week.
A collapse could have serious implications for the Chinese economy and leave creditors with substantial losses, potentially damaging global growth as a result.
In a sign that turmoil from the company’s problems has started to spread, Shanghai-based property business Sinic Holdings Group halted trading on Monday after an 87pc slump in its stock on the Hong Kong Exchange. It did not give a reason for the pause, which came after trading volumes that were 14 times higher than usual.
The Vix, Wall Street’s “fear gauge” measuring investors’ expectations of market swings, hit its highest level since May as jitters spread across trading floors worldwide.
Analysts at Charles Schwab, the wealth manager, said: “Contagion concerns are ramping up amid intensifying uncertainty regarding a potential default of China’s second-largest property developer Evergrande.”
China’s property market accounts for more than a quarter of the country’s GDP and there are growing concerns that problems could spill into the global economy and broader financial system.
However, the country’s Communist government has made no promises to bail out Evergrande and there are doubts about Beijing’s ability to prevent a chaotic collapse.
Louis Tse, managing director at Wealthy Securities, a Hong Kong-based broker, told the Financial Times that a shockwave could ripple across China if the business went bust: “Evergrande is just the tip of the iceberg … it has a chain effect.”
The crisis in Chinese property is just one among a string of factors conspiring to pull markets down. Traders are also concerned that the US Federal Reserve will begin cutting back on support at a meeting this week, and Europe is being hammered by rocketing energy prices. Gas costs jumped to a record close in Britain and the Netherlands on Monday due to a severe shortage of supply.
Global commodity prices also took a hammering, with oil prices falling 1.5pc, while iron ore sank by nearly 5pc. Agricultural commodities, such as soya, corn and sugar also dipped.
Analysts at Morgan Stanley said US stock markets could fall by more than a fifth as investors wait to see whether the US central bank, the Federal Reserve, will take any action to try to curb rising inflation.
They said evidence was starting to point towards weaker growth and waning consumer confidence and urged investors to stick to defensive, quality companies and those that would benefit from higher interest rates.