You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App

NEW SENS search and JSE share prices

More about the app

Evergrande meltdown ensnares stocks with very little China links

A Chinese property owner in distress, and in short order the shares of American social media and auction companies are tumbling.
Image: Qilai Shen/Bloomberg

A Chinese property owner in distress, and in short order the shares of American social media and auction companies are tumbling. The chain reaction may say more about the extreme altitude of global risk assets than it does about economic contagion.

While it doesn’t require excessive sleuthing to understand why commodity and bank stocks are quaking in the vortex surrounding Evergrande, the link with a stock like Twitter Inc. or EBay Inc. is harder to see.

“You’ve got a whole basket of things to be concerned about — throw this headline into the mix and that throws everything askew. So there’s going to be irrational de-risking taking place that doesn’t connect logically,” said Art Hogan, chief strategist at National Securities, of the Evergrande crisis. “Does it make sense for technology stocks to be selling? No, but in a risk-off scenario, everything tends to be for sale — even cryptocurrencies.”

Though there may not be an obvious connection between some US tech stock and China, that doesn’t mean the selloff makes no sense. Sky-high valuations have been bear fodder for months, and Federal Reserve hawks are circling. Evergrande may seem like a flimsy rationale, but Monday’s rout is similar in size to a half dozen other market plunges in 2021 that didn’t require any news to ignite.

In fact, investors took the opportunity to sell in a market that’s been priced to perfection. The Russell 2000 Index of smaller companies, typically thought of as being more US oriented and with less international exposure than the S&P 500, led declines, falling as much as 3.6% Monday. An index of regional banks, stuffed with companies like Bank of Hawaii Corp. and PacWest Bancorp, lost 3.9% at one point.

The iShares MSCI Emerging Markets ex China ETF fell more than 2%, while Twitter, which is not directly accessible in the country, lost more than 4% at one point. And companies only operating in the US, like supermarket chain Kroger Co., also dropped.

In other words, lots of assets are getting embroiled in the selloff, and “I don’t know that that’s entirely appropriate,” said Hogan.

Still, the word “contagion” is being thrown around due to Evergrande’s size. The Chinese real estate developer has about $300 billion worth of liabilities, more than any other property developer in the world, Bloomberg has reported, and it accounts for about 16% of outstanding notes in China’s high-yield dollar bond market. Though worries over the company’s ability to service its debt have been percolating for weeks, those concerns came into greater focus this week with some $83.5 million of interest on a five-year dollar bond coming due Thursday for the firm.

But investors are also contending with plenty other worries: weakening earnings forecasts, a slow shift in Federal Reserve policy, uncertainty in Washington D.C., and more.

“With the high valuations, the Fed meeting tomorrow, we have a perfect storm for a very difficult day today,” Katy Kaminski, chief research strategist and portfolio manager for AlphaSimplex Group, said in an interview on Bloomberg Television with Jonathan Ferro. “For us, it’s much more of an underlying problem that is much more economic in nature and pervasive as opposed to something simply financial.”

Not all of Monday’s tumbles were without reason. A Goldman Sachs basket of Russell 1000 companies with the highest sales exposure to China fell as much as 3.3% during the session, its worst day since mid-May, while another focused on stocks that are exposed heavily to supply chains in the country — also tracked by the bank — dropped 3.7% at its worst.

Jerry Braakman, chief investment officer of First American Trust in Santa Ana, California, said that it also makes sense that commodities like copper, iron ore and crude oil would decline.

“China is still a huge demand-driver for basic commodities because they’re doing all the manufacturing for us,” he said. Braakman also singled out some of the tech giants, including Apple Inc. and Tesla Inc., with big China exposure. Apple in 2020 booked roughly 15% of its revenue in China, a figure that clocked in at 21% for Tesla, according to data compiled by Bloomberg.

To Gene Tannuzzo, a portfolio manager at Columbia Threadneedle, it’s logical that names tied to China’s property sector and related commodities would be hit, so he and his team are watching slumping iron ore prices. “If other commodities follow it lower — oil, copper — that is generally correlated with weaker returns for US high yield,” and the latter still suggests risk of contagion is low, he said. “Everything is a little softer today, but none of those charts look like iron ore yet.”

Iron ore futures have tumbled almost 60% since a record in May.

Wells Fargo Investment Institute senior global market strategist Sameer Samana is also looking at high-yield spreads for an inkling on whether a contagion is at hand. To him, the selloff in US stocks is much more about extreme positioning and a relentless buy-the-dip mentality that may have cut into sidelined cash that’s typically been used during drawdowns.

“Until high-yield spreads in the US widen further, this should be viewed as an opportunity in US equities,” he said.

© 2021 Bloomberg

COMMENTS   7

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

The beginning of the slow controlled demolition of the current financial system.

First the collapse of the property markets, followed by the stock markets.

Couple with banks folding, chaos and panic, combined with supply shortages etc

Enter the Great Reset.

The “current financial system” is 3000 years old.

2Sensei :

Sensei, you of all people should know that in the 70’s Nixon took the worlds anchor currency off the gold standard.

Which was the financial system for centuries – money [ receipt ] exchanged for gold.

Now the fiat system is backed by SFA.

And that’s when the wheels came off.

Throw into the fermenting pot the huge paper futures trading behemoth that has also skewed everything, and you have a financial system built on quicksand.

The reality is this whole vrot system controlled by an elite few is so perverted it does NOT resemble ANYTHING of the previous gold backed ‘financial system’

Really can’t believe this is you posting.

I agree with every point you have made. My point is simply that we have seen this repetitive cycle between commodity money(wheat, silver, copper, gold), then representive money(wharehouse reciepts for those commodities), and ultimately fiat currencies(bouncing cheques) ever since the first Chinese Empires started using paper currencies.

We are at the end of a fiat regime that will again be followed by a commodity money system. It is just that the current fiat system might survive for another 100 years.

So we are 100% on the same page I believe. There is nothing new on earth.

Yes it has been going a long time. In some places it was based on exotic sea shells. Let’s hope it can morph into something with a higher credibility level. Since we are moving into a world of carbon credits why not link currency to energy. Whoever wishes to print money takes on a commitment to pay the holder in kWhrs. There is infinite amount of energy available but the winners are the guys who can drive the cost down sustainably. Win-win for the global financial system and the environment.

Tks Sensei:

Yes and No to your comment.

Firstly, this is the kicker, as you yourself wrote :

“……and ultimately fiat currencies(bouncing cheques) ever since the first Chinese Empires started using paper currencies. ”

You see, the former [ good stuff like commodities/gold etc ] are now being manipulated by the latter [ ‘bouncing cheques’ as you so aptly described ]

And this toilet paper play play stuff called fiat can be printed at will to accumulate the ‘good stuff’

However, you don’t have to be a rocket scientist to know this current perverted system is a race to the bottom.

Period.

Because quite simply, printing yet MORE paper money via QE etc is like applying a band aid to a shotgun wound.

There will have to be an eventual ‘balancing of the books’ like the inevitable hangover after the party……. which is now in the final hours of dawn.

Even worse, the elite have been playing this game for centuries as you say.

In that light, if you think they don’t already have a crafty card up their sleeve to pull this plug in their favour [ the Great Reset ], then I have a beach in Boksburg to sell you.

And the sad news is this RESET will only further impoverish the man on the street and enrich the elite like the many engineered boom/bust cycles that have come and gone.

Rinse.Repeat.

But unfortunately this time around this bust will be of biblical proportions, just due to the current global system where EVERYTHING is now connected in a flash [ whereas before it was more localized, therefore less centralized and any shock waves were less severe relatively speaking ]

That’s because peoples wealth changed from HARD ASSETS like farming implements, producing commodities, growing their own food etc etc into now binary zero’s and one’s on a digital ledger in the banking sky all connected to the top.

All of which can be evaporated at the push of a button.

The result is many many people, even ‘informed individuals’ like yourself, are going to get caught in the ensuing tsunami of, dare we say it, the paving of way for the public introduction of the NWO ?

The writing is on the wall.

Start building your ark.

How does the South African economy link to the Chines economy? When China equity drops we see the same thing in the JSE?

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Podcasts

INSIDER SUBSCRIPTIONS APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING PORTFOLIO TOOL CPD HUB

Follow us:

Search Articles:
Click a Company: