A Chinese company called Evergrande is hitting stocks hard. Here is what you need to know.



Stock markets from Hong Kong to New York were hit by a massive selloff on Monday, as a huge Chinese real estate conglomerate called China Evergrande Group faces a potentially devastating default.

The Dow Jones Industrial Average fell more than 800 points mid-afternoon, while the S&P 500 and Nasdaq also fell sharply.

The Evergrande group owes around $ 300 billion, and investors fear a default could destabilize China’s financial system, one of the world’s largest economies.

Concerns over Evergrande come at a delicate time for Wall Street, which has gone from a record run at the start of the year to heavy crashes this month.

Investors face a growing list of concerns, from the Delta variant to a possible US government default here at home.

Here are three things to know about the stock market.

So what’s going on with Evergrande?

Evergrande is one of the biggest real estate developers in China, and it’s in big trouble.

In a bankruptcy filing earlier this month, Evergrande categorically said “there is no guarantee that the group will be able to meet its financial obligations.”

So far, Evergrande’s efforts to offload office buildings and attract new investors have not helped, and the company has hired a team of outside advisers.

But a big question is how the Chinese government will intervene, if at all. China is increasingly concerned about the country’s debt levels, especially in its overheated real estate sector.

A default would raise concerns about the stability of China’s financial system, and some investors worry about contagion – when fear of a major event spreads.

Noel Celis / AFP via Getty Images

The headquarters of the China Evergrande group are in Shenzhen, southeast China, on September 14. Fears of a default by the Chinese real estate giant have triggered a massive sell off in the global stock market.

Weren’t things already difficult on Wall Street?

Yes they were. The Dow Jones has fallen in each of the previous three weeks, a rarity in a year marked by a series of record highs.

September has traditionally been a difficult month for the markets. This year, several factors are weighing on inventories.

The Delta variant is a major concern as it continues to spread across the country, threatening economic recovery. Already, airlines say they are seeing more cancellations and fewer bookings.

Uncertainty raises the stakes for the Federal Reserve, which meets Tuesday and Wednesday.

Fed Chairman Jerome Powell said the central bank plans to start cutting some of the massive market support it is currently providing to markets this year, a process known as cutting bonds. This support has taken the form of purchases of $ 120 billion of government bonds and mortgage-backed securities each month.

And there are also concerns about a default on the part of the US government.

Treasury Secretary Janet Yellen said the United States could run out of money to pay its bills in October if Congress does not raise the debt ceiling, which is far from certain at some point. where Democrats only have a razor thin majority.

In a Wall Street Journal editorial on Monday, Yellen warned that a default would lead to “widespread economic catastrophe.”

Treasury Secretary Janet Yellen testifies before a Senate Appropriations Subcommittee on June 23 at Capitol Hill in Washington, DC Yellen warned Monday of economic potential

Greg Nash / AP

Treasury Secretary Janet Yellen testifies before a Senate appropriations subcommittee on June 23 at Capitol Hill in Washington, DC Yellen on Monday warned of a potential economic “catastrophe” if Congress does not raise the debt ceiling .

So what happens next?

By mid-September, all three major indices have fallen.

Trading on Wall Street is expected to remain volatile, with investors proceeding with caution. They will be very attentive to the Fed’s plans and they will be watching what is going on in China. And economic data will continue to be important.

Perhaps the biggest factor will be what’s going on with the Delta variant, which has led many companies to push back return-to-work dates.

Wall Street forecasters are already lowering their earnings expectations this year, and many are predicting a near-term pullback.

That said, the markets have experienced periods of uncertainty since the start of the pandemic, and they have finally recovered to continue their march towards new records.

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