Global stock markets slide on cocktail of economic worries

Global stock markets have fallen sharply on a cocktail of worries led by a potential crisis brewing in China – and added to by gas supply concerns in Europe.

Fears over the future of Chinese property giant Evergrande – and the possibility that its problems could have wider knock-on effects in the world’s second biggest economy – sent Asian markets sharply lower overnight.

Stock indices in Europe followed suit, with France’s Cac 40 and Germany’s Dax each losing about 2% of their value and Wall Street also heading south later, with New York’s Dow Jones down by 2%.

Worries about Evergrande have been growing as it scrambles to raise funds to pay its lenders, suppliers and investors.

Regulators have warned that its $305bn of liabilities could spark broader risks to China’s financial system if its debts are not stabilised.

Some observers have expressed worries that the fall-out from the crisis might prove to be a “Lehman moment” for the country – drawing parallels with the collapse of US investment bank Lehman Brothers more than a decade ago, which sparked a wider financial crisis.

More broadly, investors are also fretting about the impact of rising coronavirus cases and growing inflation on the recovery of global economies from the pandemic.

With growth slowing it raises the spectre of “stagflation” – the possibility of the economy stagnating while at the same time prices spiral.

A gas price crisis across Europe, which has put pressure on smaller UK energy suppliers and has also been having knock-on effects for food supply, is only adding to the inflation worries.

In London, mining giants such as Anglo American and Antofagasta – whose fortunes are partly dependent on China’s demand for the commodities they produce – were among stocks sliding on Monday.

Those losses were partly offset by the impact of the US easing transatlantic travel rules, which provided lift-off for British Airways owner International Airlines Group – up 11% – and engine maker Rolls-Royce – which gained 4%.

But the FTSE 100 still ended the session nearly 1% lower, at a two-month low.

Elsewhere, the generally risk-averse mood also hit the oil price, which dipped below $74 a barrel, and the pound, which fell by about a cent against the US dollar to less than $1.37.

Cryptocurrencies also felt the impact of the downbeat sentiment among investors, with Bitcoin about 5% lower.

Russ Mould, investment director at AJ Bell, said: “There’s plenty for the market to fret about and those arguing the markets were looking frothy are seeing some of that froth disappear as a brewing crisis in China, surging gas prices in Europe and concerns about stagflation combine to sink stocks.”