A Chinese Real Estate Company Is Walloping Your Stocks. Here's Why

RACHEL MARTIN, HOST:

All right. So a Chinese real estate company you've probably never heard of is behind one of the worst days on Wall Street in months. The S&P 500 fell by 1.7% percent. It's the worst fall since mid-May. So what's happening in China, and why is Wall Street nervous? NPR's David Gura has more.

DAVID GURA, BYLINE: The company is called the Evergrande Group, based in the city of Shenzhen. And on Monday, its problems led to a big sell-off around the world, from London to New York. Evergrande is in deep financial trouble. It owes creditors roughly $300 billion, and the real estate company is struggling to meet its financial obligations. In other words, Evergrande could default on its debt. The company has hired new financial advisers, and it's tried to cut costs and offload office buildings. But that has not made a dent in the company's debt load. That's worried investors in Hong Kong and globally. The effect of a default could spread beyond China's borders. It could set off fears by creating concerns about the stability of China's financial system, one of the largest in the world.

Jose Rasco is the chief investment strategist at HSBC Private Bank Americas.

JOSE RASCO: There is concern about some of the property developers. And is this a one-off, or is this a systemic risk problem? We don't believe it is. We believe it's a one-off, and we think the Chinese government will support the system, provide the liquidity necessary.

GURA: The troubles with Evergrande come as Washington faces the prospect of a default of its own. Congress has yet to raise what's called the debt ceiling, which sets a limit on how much the government is allowed to borrow. Treasury Secretary Janet Yellen says the government could hit that ceiling in October. And in an op-ed for The Wall Street Journal, she warns it would be disastrous if the U.S. were to default for the first time in its history. It's been a tough month for stocks already. Worry about the delta variant has hit markets hard.

A two-day Federal Reserve meeting gets underway on Tuesday, and Fed Chairman Jerome Powell has said repeatedly the virus determines the path of the economic recovery. It's expected the Fed will focus on how to reduce some of the support it's provided to markets during the pandemic. It's been buying $120 billion worth of bonds and mortgage-backed securities every month. Fed Chair Powell and many of his colleagues at the Central Bank have said it's time to consider how to reduce those purchases, something the Fed will do deliberately and delicately so it doesn't catch Wall Street by surprise. The Fed will also share its latest views on the health of the economy as prices have continued to climb.

David Gura, NPR News, New York.

(SOUNDBITE OF PHAELEH'S "JOURNEY") Transcript provided by NPR, Copyright NPR.