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(Alliance News) - European equities made a dire start to the week as a bubbling debt crisis at Evergrande sparked fears of a contagion on Monday, as investors consider the long-term effects of the saga at the Chinese real estate firm.
In London, hefty gains for airline stocks prevented sharper falls, while in Frankfurt, the newly-expanded DAX index got going with a heavy decline.
The FTSE 100 index ended down 59.73 points, or 0.9%, at 6,903.91, its lowest close since July. It recovered from being 1.9% lower earlier in the session, however. The mid-cap FTSE 250 index shed 257.22 points, 1.1%, at 23,401.72. The AIM All-Share index ended down 20.74 points, 1.6%, at 1,255.00.
The Cboe UK 100 index ended down 0.5% at 686.93. The Cboe 250 ended down 0.8% at 21,178.90. The Cboe Small Companies was 1.3% lower at 15,348.80.
"Chief among investor worries has been Evergrande's debt woes and its potential spillover on other property developers, lenders and other sectors - not only in China, but elsewhere too. Investors are not sure whether Chinese authorities will be able to contain the fallout from a possible disorderly collapse of the heavily indebted company," ThinkMarkets analyst Fawad Razaqzada commented.
"If the problems ended with Evergrande then there wouldn't be too much of an issue as far the wider financial markets are concerned. But this could have repercussions on many other companies. So, the contagion risks may be much wider than the markets currently expect. Equally, a lot depends on how China's authorities will respond to this crisis. Will they bail the company out, or let it collapse and make an example of it? China is also cracking down heavily on other key sectors in the economy, providing additional uncertainty hanging over the Chinese markets and economy."
In mainland Europe, the CAC 40 stock index in Paris was down 1.7% and the newly expanded DAX 40 index in Frankfurt lost 2.3%.
The DAX's 10 new members joined with effect on Monday. The likes of sportswear brand Puma and online fashion company Zalando joined the benchmark on Monday. Suffering from Monday's risk-off mood, Puma fell 1.5% and Zalando dropped 5.1%.
Among London's blue-chip index meanwhile, many stocks have an exposure to China, meaning Monday's share price falls were largely broad-based. Declines were seen in the mining sector, with Anglo American losing 4.9%, in luxury retail, with Burberry down 0.8% and in financial services, with Standard Chartered notably falling 7.0%.
Evergrande warned it may not be able to repay loans and interest on its bonds - totalling more than USD300 billion - and could go under. With some payments due Monday and Thursday, investors are keeping a nervous eye on the crisis, which has fanned fears of a domestic and international contagion.
US stocks were also lower at the time of the London equities close. The Dow Jones Industrial Average was down 1.5%, the S&P 500 1.6% lower and the Nasdaq Composite shed 2.1%.
"The fear of an Evergrande bankruptcy appears to be leading to concern about China's very own Lehman moment, and a big overspill across the region, with two bond payments due this week, and concerns over whether they get paid," CMC Markets analyst Michael Hewson commented, likening Evergande to Lehman Brothers, the investment bank whose collapse was a key moment in the global financial crisis.
Oil prices weakened. North Sea benchmark Brent was quoted at USD74.58 a barrel late Monday, down from USD75.06 late Friday. Gold stood at USD1,764.07 an ounce, higher from USD1,754.70.
Spared from an Evergrande-related hit, however, were airlines. International Consolidated Airlines Group was the FTSE 100's best performer, rising 11%.
The British Airways owner denied predictions that it will go cap in hand to investors for more cash, something which peer easyJet did earlier this month, the Sunday Times reported.
IAG Chief Executive Officer Luis Gallego denied any plans for a fundraise, telling the Sunday Times: "We do not see the necessity to do a rights issue and are not considering it."
Also boosting the airline sector, the US announced Monday it will lift Covid travel bans on all passengers in November if they are fully vaccinated and undergo testing and contact tracing.
Jeffrey Zients, coronavirus response coordinator for President Joe Biden, told reporters the new "consistent approach" would take effect in "early November."
The easing of travel restrictions, imposed 18 months ago by Donald Trump as the Covid-19 pandemic first erupted, marks a significant shift by Biden and answers a major demand from European allies at a time of strained diplomatic relations.
easyJet ended 4.0% higher and Wizz Air rose 1.4%. Ryanair fell 1.0%, though its shares made significant strides before the end of last week, adding over 10% between Thursday and Friday.
Moneysupermarket tumbled 9.1%, the worst mid-cap performer in London. The company offers consumers with price comparison services in sectors including energy, an industry where there are worries for smaller providers as wholesale prices surge.
Wholesale prices for gas have surged more than three-fold since January – with about a 70% rise since August alone, leading to calls for support from the industry.
UK Business Secretary Kwasi Kwarteng previously said consumers would be protected from sudden price hikes through the government's energy price cap.
However, that puts pressure on the suppliers – particularly smaller companies – which are unable to pass on the increases in wholesale gas prices to their customers.
Back in London, AIM-listed Naked Wines shed 11%. Liberum downgraded the wine retailer to Sell from Hold on Monday.
At the start of a key week for central bankers, the dollar was mixed. The pound bought USD1.3678 at the time of the London equities close on Monday, down from the USD1.3752 it fetched on Friday. The euro was trading at USD1.1734, unchanged. The greenback lost ground on the yen, however, falling to JPY109.46, from JPY109.92.
The US Federal Reserve starts its two-day policy meeting on Tuesday, with an announcement on Wednesday. Also issuing policy decisions this week are the Bank of Japan and Bank of England.
"In addition to the safe-haven trade, the greenback is also supported by investors' expectation that the Fed could announce the beginning of the tapering of its asset purchases later this week," ActivTrades analyst Ricardo Evangelista said.
Tuesday's economic calendar has the latest CBI industrial trends survey in the UK at 1100 BST. Financial markets in China stay closed on Tuesday to mark the Mid-Autumn Festival, though the Hong Kong stock exchange remains open. Financial markets in Japan re-open after marking the Respect for the Aged Day holiday on Monday.
The local corporate calendar has half-year results from DIY retailer Kingfisher and chipmaker Alphawave IP. Catering firm Compass releases a trading statement.
By Eric Cunha; ericcunha@alliancenews.com
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