Evergrande-Triggered Crisis Temporarily Halted
23rd Marks Turning Point for Bankruptcy Risk
FOMC Meeting Begins Today
Early Rate Hike Signal Could Trigger Market Turmoil
[Asia Economy New York=Correspondent Baek Jong-min] The New York stock market, which had been shaken by the bankruptcy crisis of Chinese real estate developer Hengda, started on an upward trend.
On the 21st (local time), the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Index all started with a 0.5% rise.
The previous day, the Dow Jones fell sharply by 1.79%, the S&P 500 by 1.70%, and the Nasdaq by 2.19%, causing significant turbulence.
It is analyzed that the Hong Kong Hang Seng Index, which closed up 0.5% that day, recovering from the previous day's sharp drop of over 3%, led to the rise in the U.S. stock market.
The Hengda stock price, which triggered the plunge, fell by only 0.4%.
Unlike the rebound in the Hong Kong stock market, Japan's Nikkei Index plunged by 2%. The Nikkei reflected the Hengda crisis all at once due to no trading in the Tokyo stock market the previous day.
U.S. investors focused more on the situation in China than on their own country's debt ceiling negotiations and the Federal Reserve's movements.
Hengda must pay interest on debts amounting to $300 billion by the 23rd.
The international credit rating agency S&P forecasted that Hengda would fail to pay $83 million in financial costs. S&P diagnosed that the Chinese government would not directly intervene to support Hengda.
There is also an expectation that the Chinese government will provide indirect support to Hengda. Yardney Research said, "The Chinese government is well aware of the consequences if Hengda goes bankrupt, so it will prepare countermeasures," and expected the stock market to rebound as well.
Jimmy Chang, Chief Investment Officer (CIO) of Rockefeller Global Family Office, predicted, "If Hengda goes bankrupt, the contagion effect on the economy will be significant. The Chinese government will have state-owned enterprises acquire Hengda." Chang CIO expressed concern, saying, "If China experiences serious problems due to Hengda, the whole world is expected to be greatly affected."
Rick Rieder, BlackRock Global Chief Investment Officer of Fixed Income, also expected that intervention by the Chinese government would be inevitable.
The market is paying attention to whether signals about tapering asset purchases or interest rate hikes will emerge at the Federal Open Market Committee (FOMC) meeting of the U.S. Federal Reserve (Fed), which starts today and lasts for two days.
While the dominant opinion is that a decision to taper asset purchases will not be made immediately, whether signals indicating an earlier timing for interest rate hikes will appear is considered the key point of this meeting.
Fed officials forecasted two interest rate hikes in 2023 through the dot plot announced in June. If Fed officials send signals to bring forward rate hikes amid rising inflation and economic recovery, significant market turmoil is expected.
Ma Young-yoo, Chief Investment Strategist at BMO Asset Management, said, "We need to check whether the dot plot deviates from market expectations."
Considering the time difference between the U.S. and China, the FOMC meeting and Hengda's bankruptcy decision will affect the market on the same day.
If these two negative factors are reflected simultaneously, the possibility of a 'perfect storm' occurring in the global market cannot be ruled out.
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