Asian markets react to Evergrande's bankruptcy

Stocks slide in response to China's Evergrande Group filing for bankruptcy

By Ahmed Azzam | @3zzamous | 18 August 2023

  • Asian Markets Slide: Negative Wall Street influence, Evergrande bankruptcy, and Fed tightening fears lead to Asian market decline.

  • Evergrande Bankruptcy Impact: Evergrande seeks Chapter 15 protection in the US, revealing global bankruptcy implications.

  • Japan's Inflation Challenge: Steady inflation at 3.3%, softer core inflation pose hurdles for Bank of Japan's 2% target.

  • UK Retail Dips: UK retail sales fall 1.2% due to weather and rising prices.

  • Bitcoin's Fall: Bitcoin drops under $26,000 post SpaceX's sale.

Asian stock markets encountered a broad decline on Friday, largely mirroring the negative trajectory set by Wall Street, as Treasury yields reached a 15-month peak. This came in response to the Federal Reserve's July meeting minutes that signaled a heightened possibility of further tightening in light of escalating inflation risks. The sentiment was further dampened by the news of China Evergrande Group, a colossal developer, filing for bankruptcy in New York. The fallout was particularly pronounced in markets across Australia, Japan, and Hong Kong, while Chinese shares demonstrated sluggishness.

China’s Evergrande files for bankruptcy

In a significant turn of events, China's renowned Evergrande Group, once a pillar of the nation's real estate sector, officially filed for bankruptcy protection in New York on Thursday. The company's extensive borrowing and subsequent default on its debt in 2021 had set off a seismic property crisis that continues to reverberate through China's economy. Evergrande sought refuge under Chapter 15 bankruptcy, a provision allowing US bankruptcy courts to intervene when insolvency matters involve foreign entities. This mechanism fosters cooperation between the US legal system and international counterparts during cross-border bankruptcy cases.

The consequences of Evergrande's downfall have rippled through the industry, as other major developers such as Kasia, Fantasia, and Shimao Group have also defaulted on their financial obligations. In a recent development, China's real estate heavyweight, Country Garden, issued a warning indicating its contemplation of "debt management measures," hinting at a possible debt restructuring effort amidst struggles to amass funds. The overarching challenges have been exacerbated by a broader economic deceleration within the nation.

Japan's inflation holds steady, core inflation softens

Japan's annual inflation rate for July 2023 stood unchanged at 3.3%, surpassing market projections of 2.5%. However, the core inflation figure retreated to a four-month low of 3.1% from June's 3.3%, aligning with consensus but still eluding the Bank of Japan's elusive 2% target for the 16th consecutive month. On a monthly basis, consumer prices observed a 0.4% upswing, the most substantial uptick in three months following a modest 0.2% gain in June.

UK Retail Sales Falter Amidst Economic Headwinds

July proved to be challenging for the UK's retail sector, as sales dipped by 1.2%, a larger contraction than the anticipated 0.6% decline. The uncharacteristically cold weather played a role in dissuading shoppers, potentially serving as an indicator that consumers are grappling with the dual pressures of escalating prices and surging interest rates. Awaited on the horizon is the final euro-area inflation reading, predicted to remain unchanged from the preliminary figure of 5.3%.

Bitcoin drops to two-month low

Bitcoin's recent rollercoaster ride took a downward turn, plummeting below the $26,000 mark for the first time in two months, only to recuperate modestly during Asian trading hours. This slump was triggered by revelations that SpaceX had liquidated roughly $373 million worth of Bitcoin. The downturn effectively wiped out much of the gains amassed after BlackRock's surprise petition for a Bitcoin ETF on June 15. Notably, crypto investors are displaying heightened risk aversion as global government bond yields ascend to levels unseen in approximately 15 years.