Singapore, Sept. 21 (BNA): Asian stocks struggled to shake off contagion fears on Tuesday and selling pressure continued amid concerns that problems at debt developer China Evergrande could spread across the global economy, markets and the financial system.
Hong Kong’s Hang Seng hit an 11-month low and fell 0.3% mid-session, with early gains in banks and real estate stocks dwindling slightly. Japan’s Nikkei returned from the market holiday with a decline of nearly 2%, Reuters reported.
Currency, commodity and bond markets stabilized, but overall demand for riskier assets remained low especially as the Federal Reserve is expected to approach tapering on Wednesday.
European futures rose 0.5% in the Asian session. FTSE futures advanced 0.7% and S&P 500 futures rose 0.6% daily after selling hit banks on both sides of the Atlantic and led the S&P 500 to its biggest drop in two months.
“For markets to rebound, we need to see concrete action from the authorities to stem any widespread contagion,” said Dave Wang, portfolio manager at Nuvest Capital in Singapore.
Although China is on holiday, and mainland markets are closed, there is little evidence of this so far, with Evergrande’s problems not being mentioned in major Chinese state media.
Struggling for liquidity, Evergrande owes $305 billion and investors are on the brink of a risk that reverberates in China’s real estate sector and everything is exposed to it – primarily banks and then the broader economy.
The Chinese yuan stabilized in foreign trade to offset some of the losses that pushed it to a three-week low on Monday.
Evergrande shares are down 4% as focus shifts there to Thursday when the company is due to make its bond interest payments.
The Australian stock market was also a bit better than flat, with iron ore miners BHP and Rio Tinto shedding nine-month lows on Monday. Copper hovered near a one-month low on demand concerns.
“There is caution in the market,” said George Poporas, head of research at K2 Asset Management in Melbourne.
“However, the earnings and dividend cycle is a far cry from a bear market,” he said. “Evergrand is undoubtedly a morale issue. But there is no Lehman event…it will be addressed, bailed out or restructured if it becomes a prominent problem in mainland China.”
The next few days offer more tests, as the Federal Reserve wrapped up its two-day meeting on Wednesday and is likely to provide some guidance on the downside outlook and Evergrande is due to meet bond interest payments on Thursday.
In the currency market, traders benefited from the relative calm in Hong Kong after Monday’s plunge.
The euro was trading at $1.1730, after touching its lowest level in almost a month at $1.1700, while the safe-haven yen fell to 109.57 yen against the dollar.
The US 10-year Treasury yield rose to 1.3277%, capping the moves as markets turned to the Fed.
Investors look for the tapering schedule of their bond purchases as well as the long-term rates and economic outlook of board members.
Jarrod Kerr, chief economist at Kiwibank, said: “I think the Fed will calm things down and I think it will delay its low decision until November.
This week will also see policy decisions from several other central banks that include Brazil, Britain, Hungary, Indonesia, Japan, Norway, the Philippines, South Africa, Sweden, Switzerland, Taiwan and Turkey.
Oil prices also rebounded slightly in Asia after falling the previous day. US crude futures were traded at $70.98 a barrel.
The volatile cryptocurrency also found ground, with bitcoin jumping from a 1 1/2-month low of $40,193 to trade shy of $43,000.
HF