It was an ugly night in Asia, as fears of something bad happening in China seem to be rippling through the region.
The price of copper got clobbered overnight and it’s taking another big leg down today.
Hong Kong’s Hang Seng index was off 1.6%. Japan was down 2.6%.
European stocks are lower halfway through their trading day. Germany’s DAX is off 1.2%.
So what’s going on in China that’s got people on edge?
Well in addition to the economic weakness, and the weakening yuan, people are having jitters about a possible second bond default. (China had its first domestic corporate bond default last week when a solar company defaulted)
BAML’s Ting Lu explains:
Dear all: Bad news from China continued to feed markets. Markets (especially copper) were hit last night by news on the bond of Baoding Tianwei Baobian Electric Co (TBE) which was suspended from trading on 11 March. For some investors who have already been deeply worried about “Bear Stearns Moment” or an imminent “Lehman Moment”, this could be perceived as another snowflake to trigger an avalanche. Whether the TBE bond will default is unclear. There is a reason that the TBE bond delisting was not a big piece of news in China. We do see a significant rise in bond and trust loan defaults, but we see little chance of systemic credit crunch and growth hard landing. We expect quite volatile financial markets this year, but we also believe misperceptions in the markets could also provide opportunities
Why it’s not a big piece of news in China?
To the media in Mainland China, the delisting of TBE bonds is not a big piece of news because TBE was already in a law suit on its other debt, and the “new energy” sector was in deep trouble anyway (as what we saw in Wuxi Suntech and Chaori). TBE is in the business of making power transmission equipment, but in recent years has heavily invested in the ill-fated new energy sector and has resulted in two straight years of loss with the loss in 2013 surging to RMB5.2bn. The TBE’s Shanghai Stock Exchange listed bond was issued in 2011, with principal at RMB1.6bn, 5.75% yields and 7-year tenor. TBE’s stock price has already been fallen by 15% this year. TBE’s controlling shareholder is Tianwei group, which is a central-government owned company.
US futures, at this point, are only pointing to only modest losses though it will be interesting to see what develops during the day. Tuesday was ugly for some of the hottest stocks on the market: Plug Power, Fannie Mae, Freddie Mac, and Tesla. It will be interesting to see if those momentum names keep breaking down.
There is no major economic data coming in the US today.