Asia: Markets sink ahead of Federal Reserve decision, Hong Kong plunges again

[HONG KONG] Asian markets fell on Monday in holiday-thinned trade, dragged by a range of issues including the Federal Reserve's plans to taper monetary policy, surging Delta infections, China's regulatory crackdown and signs of a slowdown in the global recovery.

Hong Kong again led the losses on growing fears about the possible collapse of troubled property giant China Evergrande - which experts say could have a painful spillover into the broader economy - as interest payments on some of its bonds come due.

The selling followed another loss on Wall Street, where investors are also tracking the progress of Joe Biden's multitrillion-dollar spending bills, while there is unease that lawmakers have yet to raise the US debt ceiling, risking the country defaulting on its own debt obligations.

The Fed's policy meeting this week is being closely followed, with some experts predicting it could set a timetable for winding in its vast bond-buying programme put in place last year to support the economy and equity markets.

Officials have flagged they will begin tapering by the end of the year in order to keep a lid on inflation, though it is yet to indicate by how much and from when.

Wednesday's announcement comes as several other central banks around the world also prepare to make decisions, with many now considering tightening.

The shift towards turning off the taps to financial markets comes as the Delta variant continues to spread quickly around the world, forcing some governments to reimpose lockdowns or other strict containment measures.

Among them is China, where a new outbreak is raising concerns about the effect on the recovery in the world's number-two economy, a key driver of global growth.

Another major headache for traders is the debt crisis at Evergrande, which is on the brink of collapse owing more than US$300 billion, with many worried about a possible contagion that could hammer other property firms, banks and small investors.

Traders are keeping a nervous watch as the company is due to pay interest on Monday and Thursday on some of its loans and bonds.

Despite the growing crisis, the government has yet to step in to prevent it from going under.

Analysts say that, while leaders are looking to curb excessive risk-taking, they will probably work to prevent the issue from becoming unmanageable.

"The central government's priority of social stability makes restructuring likely with haircuts for debt holders, but spillovers to other listed property developers means there will likely be a real economy impact on the real estate sector," said National Australia Bank's Tapas Strickland.

"To what extent Evergrande slows the growth momentum remains unclear."

Some of Hong Kong's biggest property firms tanked on Monday, with Evergrande more than 12 per cent down while New World Development and Henderson Land dived more than 11 per cent.

The city's Hang Seng Index sank more than three per cent, while Sydney fell more than one per cent with Singapore, Wellington, Manila and Jakarta also down. Tokyo, Shanghai, Seoul and Taipei were closed for holidays.

AFP