Global Stocks Sink On Evergrande Contagion Fears

World stocks sank Monday as trading floors were gripped by contagion fears from the expected collapse of debt-plagued Chinese property giant Evergrande, while spiking energy costs and the standoff over the US borrowing limit also put investors on red alert.

Strong inflation numbers, uncertainty surrounding the upcoming Federal Reserve meeting, surging Covid-19 infections and signs of weakness in the global recovery further depressed sentiment.

Wall Street succumbed to the bad vibes, with the Nasdaq losing more than two percent and the S&P 500 and Dow losing 1.7 percent and 1.8 percent, respectively.

Beyond the Evergrande saga, Gregori Volokhine of Meeschaert Financial Services blamed the standoff over the US debt ceiling -- which the Republican opposition said they will not vote to raise -- for souring the mood on Wall Street.

"We are really playing with fire, at the risk of the government having to shut down. It's not catastrophic, but it doesn't really give confidence in the short term," he said.

US Treasury Secretary Janet Yellen recalled in an article for The Wall Street Journal how in 2011 "debt-limit brinkmanship pushed America to the edge of crisis", saying a Washington default would "likely precipitate a historic financial crisis."

In Germany, the first day of the DAX blue-chip index's expansion to 40 firms from its previous 30 was marred by the Evergrande woes, and the index fell 2.3 percent. London lost 0.9 percent and Paris dropped 1.7 percent.

Hong Kong earlier dived 3.3 percent, spearheading Asian losses, with Evergrande widely expected to default on upcoming interest payments this week.

World oil prices also fell on energy demand worries.

Evergrande, one of China's biggest developers, is on the brink of collapse as it wallows in debts of more than $300 billion.

"Investors are not sure whether Chinese authorities will be able to contain the fallout from a possible disorderly collapse of the heavily indebted company," Thinkmarkets analyst Fawad Razaqzada said.

"This could have repercussions on many other companies. So, the contagion risks may be much wider than the markets currently expect," he added.

Anxiety is also running high over spiking wholesale gas costs, fuelling global inflationary pressures and sparking concern from the world's biggest central banks.

Against this backdrop, the Federal Reserve's monetary policy meeting this week will be particularly important, according to Markets.com analyst Neil Wilson.

"Does a Chinese property collapse and energy crisis collide with expectations for a Fed rate hike next year and biting inflationary pressures?" he wrote in a note to clients.

In Hong Kong, property companies and banks bore the brunt of heavy selling.

Evergrande stock briefly plunged almost 19 percent before ending down 10 percent, sparking similar losses for Henderson Land and New World Development.