Asian investors soothed by Evergrande bond plan

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Financial stock exchange market display screen board on the street
Financial stock exchange market display screen board on the street

Asian markets mostly rose on Wednesday with nerves settled for now by news that troubled Chinese property giant Evergrande had agreed a plan to repay interest on one of its key bonds, 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, on Wednesday the firm's property unit Hengda said 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.

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

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

Eyes on Fed 

And observers pointed out that the agreement was vaguely worded as the statement did not specify the amount of interest paid or when.

Jeffrey Halley, an analyst at OANDA, warned: "The coupon payment story is likely only a temporary reprieve with no signals from the Chinese government over what steps, if any, it will take to assist an orderly wind down or restructuring."

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

The 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.

Shanghai ended with gains as investors returned from a four-day weekend.

Wellington, Manila, Mumbai, Bangkok and Jakarta all rose, with Sydney also edging up investors there brushed off news of a rare earthquake that caused damage in the second-largest city of Melbourne.

Tokyo, Singapore and Taipei ended down.

London, Paris and Frankfurt all enjoyed big gains at the open.

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.

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