Home ›› 23 Sep 2021 ›› Stock
Stocks found relief and riskier currencies gained on Wednesday as market jitters around China Evergrande eased, with the embattled developer striking a deal to pay a coupon on one of its domestic bonds.
The Euro STOXX 600 added as much as 0.8 per cent, recovering its losses from earlier in the week, with shares in London and Paris both gaining around 1 per cent.
US futures were set to gain 0.5 per cent, with Wall Street investors also focused on the Federal Reserve’s policy decision due later in the day.
Global investors have worried over a possible default by China’s No. 2 property developer, with concerns about the spillover from a messy collapse upsetting markets this week.
But Evergrande’s main unit on Wednesday said it had negotiated a deal with bondholders to settle interest payments on a domestic bond, helping calm fears of an imminent default that could unleash global financial chaos.
The news sent Evergrande’s Frankfurt-listed shares over 40 per cent higher, after hitting multi-year lows a day earlier. It also pushed government bond yields higher, as well riskier currencies such as the Australian dollar and Chinese yuan, keeping a cap on the dollar.
“This could be a bit of a relief rally,” said Matteo Cominetta, economist at Barings Investment Institute.
“Of course some bondholders may lose some money but the contagion potential of Evergrande in terms of your bank debt, bond debt are quite limited.”
As risk sentiment returned, yields on safe-haven 10-year US Treasuries rose and then eased back to flat at 1.3311 per cent. Euro zone bond yields also edged higher, while the safe-haven yen eased slightly.
The MSCI world equity index, which tracks shares in 50 countries, was flat.
Globally, markets had already started to calm as analysts downplayed the threat of Evergrande’s troubles becoming a “Lehman moment” and setting off a financial crisis.
Analysts said the focus was shifting to gauging Beijing’s so-far muted response amid worries about the consequences for a slowing Chinese economy and local financial markets reeling from months of disruptive and radical reform.
“The world is relatively relaxed about contagion risk for now,” Deutsche Bank analysts wrote in a note, citing a flash poll from Tuesday showing that only 8per cent of respondents were concerned that Evergrande would still be impacting markets in a month’s time. “The bigger risk might be the knock on impact of weaker Chinese growth.”
Returning from a two-day holiday, China shares fell, though a cash injection from the People’s Bank of China kept falls far smaller than feared. Blue chips fell 0.7 per cent and Shanghai Composite reversing losses to add 0.4 per cent.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.3 per cent.
Digital currencies bitcoin and ether, often tied to risk sentiment and buffeted by volatility in recent days, added 4 per cent and 6 per cent respectively.
