Stock markets around the world were crushed by a growing worry about a collapse of the Chinese property giant Evergrande Group, following revelations by the company’s top official that he might also seek to leave the company and top executives were suspected of falsifying financial reports.
Investors on Friday took out their concerns about Evergrande and China’s economic policy in the form of a global dive on equity markets. The drop is a result of investors worrying that the company’s disclosure of financial problems – claims that executives falsified balance sheets and falsified profit information – meant it was in more financial trouble than previously thought.
“This situation could bring significant downward pressure on the Chinese equity market,” said Henry Liu, the head of hedge fund firm BOCOM International in Hong Kong. “There is already an extreme disconnect between stock and property markets, which have been on a roller-coaster ride. Evergrande is an important part of the market.”
The Shanghai Composite Index plunged 7.1 percent, the largest one-day drop in 12 years. Global indexes tumbled from Asia to Europe and the U.S. Market leaders — such as the Dow Jones industrial average and the S&P 500 — had fallen to below their 200-day moving averages, a troubling indicator for stocks because it means future stock gains will likely be lower than the growth of the last six months.
Meanwhile, the index set off alarms in China. An index that is partly tied to the stock market crashed by 7.5 percent.
This comes at a point where investors fear China’s ability to respond to a crash in its stock market, especially because China has been spooked by the worries that their market might collapse.
China’s government has poured money into domestic stocks in recent weeks to prevent a crash, giving it more capital to spend, but the fires haven’t been put out.