Stock Futures Fall on Chinese Property Fears

U.S. stock futures fell, pointing to an extension of recent losses on Wall Street as jitters in China’s indebted property sector rippled into global markets.

Futures for the S&P 500 dropped 1%, after the broad stocks gauge posted its biggest two-week decline since February. Futures on the Dow Jones Industrial Average lost 1.3% and contracts for the technology-focused Nasdaq-100 fell 0.9%.

In other signs investors were shifting out of riskier assets, the dollar strengthened, oil prices dropped and Treasury yields skidded.

The WSJ Dollar Index rose 0.2%. Futures for Brent crude, the benchmark in international energy markets, fell 1.1% to $74.53 a barrel. Yields on 10-year Treasury notes, which move inversely to the price of the bonds, slipped to 1.346% from 1.369% Friday.

The broad retreat came amid concerns over property developer China Evergrande Group. Market participants increasingly believe that Beijing will let Evergrande fail and inflict losses on its shareholders and bondholders. The company’s debt burden is the biggest for any publicly traded real estate management or development company in the world.

Shares of Evergrande, which said Sept. 13 it was facing unprecedented difficulties, tumbled 12% in Hong Kong to their lowest level in a decade. The city’s Hang Seng Index slid by 3.4%. Mainland Chinese markets were closed for a holiday.

“Everyone is looking at Evergrande and saying ‘has the time come for a major default in that area, and then the potential for contagion into the broader property sector?’” said

Edward Park,

chief investment officer at Brooks Macdonald. “It’s an imminent risk now rather than being a theoretical risk as it has been for the past few years.”

The concerns over Evergrande struck at a time when investors had already grown more cautious about the outlook for stocks, after a booming rally for much of the year. Money managers have said valuations look elevated and pointed to signs that the economic recovery in the U.S. has lost steam amid the spread of the Delta variant of the coronavirus.

Other factors weighing on markets Monday included a natural-gas shortage in Europe that has prompted the U.K. government to hold emergency talks with energy suppliers, Mr. Park said.

The Federal Reserve will likely use its policy decision Wednesday to pave the way to pare back some of the stimulus it lavished on markets last year, he added.

A domestic bank loan repayment is due by Evergrande on Monday, with a 24-hour grace period, according to strategists at

Deutsche Bank.

Payments on domestic and dollar bonds are then due Thursday.

In other overseas markets, the Stoxx Europe 600 dropped 1.4%, led lower by shares of basic-resource companies, banks and insurers. Among individual stocks,

Prudential

lost 5.9% in London after the insurer said it planned to raise 22.49 billion Hong Kong dollars, equivalent to around $2.9 billion, by issuing new shares.

In currencies, the pound weakened 0.6% against the dollar to trade at $1.3670.