Asian investors soothed by Evergrande bond plan

September 22, 2021: Asian investors trod carefully on Wednesday but nerves appeared to be settled by news that troubled Chinese property giant Evergrande had agreed a plan to repay interest on one of its key bonds, for now avoiding a default that many fear could hammer the domestic and global economy.

However, confidence remains at a premium as traders await a crucial meeting of the Federal Reserve, where it could announce a timetable to start tapering its vast monetary easing programme.

That comes against the ever-present backdrop of spiking coronavirus infections and slowing global growth, as well as a brewing battle over the US debt ceiling that, if not resolved, could see a default in the world's top economy, potentially sparking another financial catastrophe.

In Asia, eyes were on mainland Chinese markets as investors returned to work from a four-day weekend to catch up with Monday's rout fanned by feverish talk that one of the country's biggest developers was close to collapse.

While Tuesday saw a little more stability return to trading floors, there remained a lot of uncertainty and there is a hope that the government will at some point break its silence and give an idea about how it intends to deal with the crisis.

With debts topping $300 billion and no way to make cash, there had been an expectation that it would not be able to meet its interest obligations Thursday on two bonds — one offshore and one domestic — which would put it effectively in default.

However, Wednesday got off to a positive start with news it had agreed a plan to repay interest on the local note, providing much-needed relief, though there was no news on the overseas payments.

There was also some cheer from a huge cash injection into financial markets by the central People's Bank of China that eased any liquidity concerns.

The Evergrande news “will be helpful and hopefully suppress some of the inevitable volatility and downside after the holiday break”, Gary Dugan, chief executive officer at the Global CIO Office, said.

However, he added: “For confidence to return more meaningfully, it will need the market to see sight of the broad restructuring plans for Evergrande.”

The PBoC move “suggests that (officials) are monitoring the situation closely and are ready to step in if the economy comes under risk”, strategist Jun Rong Yeap, at IG Asia, said.

While Shanghai fell, it dropped far less than expected, while Tokyo, Singapore and Taipei also slipped.

However, Wellington, Manila, Bangkok and Jakarta rose, with Sydney also in positive territory as investors there brushed off news of a rare earthquake that caused damage in the second-largest city of Melbourne.

The conclusion of the Fed's policy meeting later in the day is being nervously awaited.

Fed officials have signalled that by the end of the year they will begin winding in the ultra-loose monetary easing measures put in place at the start of the pandemic and which have been key to driving the global economic and equity recovery.

The growing consensus is that the first announcement will be in November and the first reduction the next month. But Fed boss Jerome Powell could still provide details on the timetable.

The decision comes as the Fed tries to keep a lid on surging inflation and prevent the recovering economy from overheating.

Meanwhile, US lawmakers are struggling to head off growing unease that the government is in danger of running out of cash and defaulting on its own bond repayments next month unless its debt limit is suspended.

Treasury Secretary Janet Yellen has warned such a scenario would cause a “historic financial crisis”.

Oil prices extended Tuesday's strong gains on signs that US stockpiles had seen a hefty drop last week, lifting demand optimism.

AFP/APP

Posted on: 2021-09-22T09:21:50+05:00

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