Known as China’s ‘Lehman Moment’, concerns about a possible collapse of China’s real estate giant Evergrande appeared short-lived for now as global stock markets bounced back from Monday’s sharp fall.
Global stock markets shrugged off fears of a contagion by making a sharp comeback on Tuesday, defying negative comments by analysts from Dalal Street to Wall Street on the troubled Chinese realty major. India’s benchmark index Sensex closed above the 59,000-mark, up 514 points or 0.88 per cent. The Nifty index closed at 17,562, up 165 points or 0.95 per cent.
‘China-centric crisis’
“For now, Evergrande feels like a China-centric crisis with no major cross-country financial woes. For stock markets to crash, as it is in 2020, we need to do something different. Mutual of India The fund industry has grown from ₹3.5 lakh crore in 2016 to ₹36 lakh crore now. Currently mutual funds, insurance companies and other domestic investors are sitting on over Rs 1 lakh crore of cash to be pumped into the stock markets.. .They are sitting on just 2-3 per cent cash. This is one of the major reasons why the market will not go down unless the US Fed changes course on easy money,” said Rahul Arora, CEO of Institutional Equities at Nirmal Bang .
Global stock markets have been on high alert since Monday as Chinese real estate giant Evergrande, founded by businessman Xu Jian in Guangzhou in 1996, struggled to meet interest payments on its more than $300 billion loan. The trouble started after Beijing introduced new rules to control debt taken by big real estate developers. The new measures led Evergrande to offer its properties at a great discount to ensure funds flow to keep the business afloat. But banks stopped lending to the property developer as cash flow slowed and ratings companies downgraded the company citing liquidity concerns.
Kotak Mahindra Bank CEO Uday Kotak said on Tuesday that Evergrande could be China’s Lehman Brothers. “Evergrande feels like China’s Lehman moment. Reminds us of IL&FS. Government of India acted swiftly. Peace to financial markets,” Kotak tweeted.
Evergrade’s chairman Yuan tried to placate investors, saying the company would “come out of its darkest moment”.
After this statement, Europe’s major stock market indices were trading with a gain of about 1 percent. On Tuesday, the Dow Jones Industrial Average opened up 55.14 points, or 0.16 per cent, at 34,025.61.
Analysts said the focus for the next few days for both global and Indian stock markets will be on the US Fed meeting on Tuesday and the RBI’s monetary policy on October 8. When the US dollar rises, all other asset classes, including the stock markets, move. the other way around, and vice versa.
“The fastest approach (for USD) from the meeting would be if the US Fed announces tapering or at least timing. If this happens, then we can see the US Dollar index going up which will impact the rupee and all other asset classes. Conversely, the most bearish outlook (for the US dollar) will be if the US Fed highlights concerns over the job market. If the committee keeps the policy unchanged and shows signs of delayed tapering, we could see a decline in the US dollar index. This will be positive for the Indian rupee,” said Heena Naik, Research Analyst at Angel Broking.
Nirmal Bang’s Arora said that unless the Fed announces a meaningful tapering of its bond-buying, it will not affect the uptrend in the markets. “Tuesday’s Fed chairman’s statement is one of the most important and will determine the further course of markets,” Arora said.
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