There is a nip of risk averse sentiment in the markets this week as autumn officially gets underway thanks to struggles across the world in China. Evergrande is a prolific Chinese property developer with large volumes of bond payments due. With two payments to lenders already missed, there are fears that the heavily in debt company could derail the Chinese economy – a move that would almost certainly have a knock-on effect worldwide.
With markets nervous as to what might happen next, US equities suffered their worst day of trading in nearly a year this week, with gold bouncing to double-digit gains in the wake of the sell-off. The precious metal’s safe haven allure is shining brightly and prices are benefitting greatly from the rush to reduce exposure, with trading up around 1% to £1,305 ($1,780) yesterday (Tuesday).
Metals strategist Nicky Shiels said, “’Macro fear’ has been woken with this Evergrande/Chinese property crisis now intensifying (knock-on effects – Chinese Property Developer Sinic halted trading after plummeting 87% in a day!) – so we have an Asian “grey swan” that is still not resolved but it’s another excuse to lighten up risk exposure.
“Ultimately, while the markets are focused on China’s overregulation (of everything from internet stocks to the commodities sector to the ultra wealthy), the escalating concerns around Evergrande highlights an even structural issue – the large-scale malinvestment over many years (since 2009) leading to ghost cities, which is coming back to haunt investors/markets now.
“The overreach for havens was thus warranted; from U.S. Treasuries (10yr yields fell from 1.38% to 1.3%), to the US$ (edging toward key s/t ceiling at ~93.50) and gold (which managed to not only hold up in the face of widespread deleveraging, but closed up on the day.”