European markets slump after China’s Evergrande falls 14%

·3-min read
A general view shows the Evergrande Center building in Shanghai, China
Evergrande revealed that a $2.6bn (£1.88bn) deal from real estate firm Hopson Development was off the table. Photo: Hector Retamal/AFP via Getty Images

European markets took their cue from Asia on Thursday, tumbling into the red after shares in China’s Evergrande (3333.HK) tanked as they resumed trading.

In London, the FTSE 100 (^FTSE) closed almost 0.5% lower on the day, falling despite a weaker pound, while the CAC (^FCHI) tumbled 0.2% in Paris and the DAX (^GDAXI) was also 0.2% lower in Frankfurt.

Stocks with Chinese exposure, most notably the mining sector, were hit the most during the session as the country is the world’s biggest consumer of a string of metals and minerals.

Following a 17-day suspension, property development company Evergrande nosedived as much as 14% overnight. It revealed that a $2.6bn (£1.88bn) deal from real estate firm Hopson Development was now off the table as they were unable to agree on terms.

Hopson was set to buy a 51% stake in its property services unit.

Evergrande is currently plagued with more than $300bn worth of debt, worrying investors that it could go under. The company's total liabilities are equal to around 2% of China's gross domestic product (GDP).

It is now exploring other options available to protect its interest.

Watch: China Evergrande misses 3rd round of bond payments

Wall Street got off to a mixed start across the pond with the S&P 500 (^GSPC) dipping 0.1% by the time of the European close, and the tech-heavy Nasdaq (^IXIC) climbing 0.2%. Meanwhile, the Dow Jones (^DJI) edged 0.4% lower.

It came as initial jobless claims in the US dipped to a new post-pandemic low, according to official data. Just 290,000 Americans filed new claims for unemployment insurance last week, a 6,000 fall on the previous week.

This was the lowest level for initial claims since the middle of March last year, just before lockdowns drove jobless claims to record highs. It was also the second straight week that claims remained below 300,000 as employers hold on to workers amid staff shortages.

Robert Frick, corporate economist at Navy Federal Credit Union, said: “Claims hit a new pandemic low of 290,000, but that number is even more impressive given seasonal adjustments were working against it due to the Monday holiday last week. All things being equal, we’re on track to return to pre-pandemic layoff levels by year’s end.”

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On Wednesday, the Dow posted a new record intraday high and the S&P 500 came within touching distance of doing the same, logging its sixth consecutive day of gains thanks to strong earnings reports

“This US exuberance isn’t translating into today’s European open... after markets in Asia came under pressure, with Evergrande shares once again getting clobbered as trading restarts there, while concerns about rising COVID cases as winter approaches is again taking its toll,” Michael Hewson of CMC Markets said.

Stocks in Asia mostly slumped overnight despite the strong Wall Street lead. In Japan, the Nikkei (^N225) fell 1.9% while the Hang Seng (^HSI) lost 0.8%, swinging in and out of positive territory throughout the session.

However, the Shanghai Composite (000001.SS) did manage to eke out a 0.2% gain.

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