The FTSE 100 index has rebounded after Monday’s turbulence, with another big rise for airline giant IAG (LON: IAG) and a strong session for Royal Dutch Shell helping to offset the contagion fears triggered by the plight of debt-laden Chinese property firm Evergrande.
While most of the factors driving yesterday’s sell-off were down to concerns over the solvency of Evergrande, this is a theme that has had the markets on edge for quite some time.
Evergrande has two US dollar bond interest payments due this week, and it seems there is no way for the company to fulfil them.
The Chinese government now faces the choice between allowing an orderly collapse of the business or facing the disorderly consequences of a ripple out contagion effect across its entire financial system.
The absence of mainland Chinese markets, as well as a holiday in Japan, may well have exacerbated yesterday’s sell-off. Still, it’s been quite clear for a while now that market nerves about the economic outlook have been rising for several days now.