Asian stocks, alongside many of their global counterparts, have recently undergone a healthy rebound upward as the embattled Chinese property giant Evergrande reportedly made its bond interest payments – a feat some onlookers feared wouldn’t happen.
Leading technology names across Asia have contributed to the market recovery also. Tech stocks have been at the forefront of the markets as they seek to accelerate away from September’s Evergrande crisis. Notably, the Hang Seng TECH (HSTECH) sub index has helped to drive some growth at the beginning of the fourth quarter, along with the general Hong Kong benchmark Hang Seng Index (HSI).
Analysts have found that a recent Wall Street rally, which helped to cause growth among Apple (APPL), Facebook (FB), and Microsoft (MSFT) stocks, has also helped to restore confidence in Asian tech, soothing concerns surrounding Evergrande. In China, shares have also been rising in what’s reportedly been the country’s weakest period of economic growth in a year.
So have the dark clouds dispersed from Asia’s markets? And can investor interest in big tech help to steer a stock market recovery in what’s been a challenging year for the continent?
The plight of Evergrande has been one of the biggest stories in finance in 2021. Although plans to rescue the Chinese developer are in place, progress has been slow. This led the firm to the brink of default, risking a collapse that would shock China’s real estate industry, house prices, and economy on a domestic and international scale.
With total debts amounting to $305 billion, Evergrande’s floundering stocks have hindered China’s recovery from the financial impact of the COVID-19 pandemic.
However, the recent news that Evergrande has met its deadline to deliver a bond interest payment of $83.5 million has delivered a wave of optimism across Asian markets.
Sadly, the interest payment is unlikely to appease the long-term fears of investors, and although the $83.5 million payment has helped the company to avoid an official default, it’s widely recognized as only a short-term fix at this stage.
Evergrande will need to repeat the process all over again in the coming days with a second offshore bond payment worth $47.5 million. Given that the company’s total liabilities amount to around 2 percent of China’s GDP, the growing debts of Evergrande could lead to a significant economic collapse that’s felt heavily across Asia and the rest of the world alike.
“Evergrande making its interest payment is a positive surprise,” said Paul Lukaszewski, head of corporate debt at Abrdn. “Importantly other developers also confirmed making interest payments – for a market which has fully capitulated, the fact the world did not end overnight could itself be a positive catalyst.”
“Multiple financing channels are effectively closed to developers in response to the policies implemented by the government. For those channels to reopen, investors have to believe these companies can remain going concerns. This means they need to have sufficient access to their own cash flows and to refinancing options to address their debt as it becomes due,” Lukaszewski added.
Although all eyes will remain firmly on Evergrande as the firm seeks to navigate away from its deep crisis, optimism appears to be seeping back into Asian markets, and growth in tech stocks appears to be playing a key role in aiding an economic recovery.
Nasdaq has reported that Asian markets have been trading mostly higher in the wake of the Evergrande crisis, owing to Wall Street support from crude oil prices and technology stocks that have mirrored their peers on Nasdaq.
Big tech firms have played a key role in aiding global markets, and their respective impact on the market was shown as the NYSE FANG+ Index climbed to its fifth consecutive positive session recently – its longest streak since June. In all, the index has climbed some 11 percent from an early October low.
The index is comprised of 10 companies with U.S. and Asia representation included – and shares in the China-based companies Alibaba and Baidu have helped to push more growth. Alibaba and Baidu experienced 4.1 percent and 2.2 percent price rises, respectively, amidst the rally.
The growth of big tech may be bolstered by upcoming developments in emerging technology markets, which could help to mitigate the impact of Evergrande across Asian finance.
Maxim Manturov, head of investment research at Freedom Finance Europe, believes that developments in fintech can carry a positive impact on markets as major financial institutions seek to grow their digital services globally.
With the further growth of financial technology services intending to aid millions of customers, it’s fair to anticipate that the growing fintech market will play a key role in bringing optimism back to Asian markets.
Although there are many hurdles ahead, and investors are rightly looking out for news on the embattled Evergrande, big tech performance has helped to return some optimism back to Asian markets. Provided there are no high-profile defaults on the horizon, tech looks set to help Asia turn the corner on a difficult third quarter and to look with more enthusiasm to a brighter fourth quarter.