TThe CBOE volatility index and exchange-traded funds linked to the VIX surged on Monday over fears of contagion from China’s real estate market problems spreading to global markets.
Among Monday’s top performing non-leveraged ETFs, the iPath Series B S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) increased by 9.5% and the ETF ProShares VIX Short-Term Futures (NYSEArca: VIXY) advanced 9.3%. Meanwhile, the CBOE volatility index climbed 19.9% to 25.0, its highest level since mid-May.
“It’s a surprise opening Monday,” Zhiwei Ren, portfolio manager at Penn Mutual Asset Management, told The Wall Street Journal. “We’re definitely a little more careful at this point. “
The general market pullback is due to concerns over real estate developer China Evergrande Group, with observers increasingly warning that Beijing could let Evergrande fail and cause heavy losses for its shareholders and bondholders. The Chinese developer’s debt is the highest of any listed property management or development company in the world.
“This is a China-based company whose activities are mostly concentrated in China. That being said, we are still monitoring global markets, obviously from the Treasury Department primarily, including assessing any risk to the US economy and we are ready to respond appropriately if necessary, ”said the attaché. White House press, Jen Pskai, referring reporters to the Treasury Department.
The concern over Evergrande was a perfect trigger for a sell off as investors became more cautious about the risk outlook, especially after the rally that lasted for much of the year. Market watchers have also warned that valuations are looking expensive and have warned that the economic recovery in the United States is weakening due to the spread of the COVID-19 Delta variant.
“At the moment, I don’t see any systemic risk to the global economy in Evergrande’s situation, but there doesn’t need to be systemic risk for markets to be affected,” David Bahnsen, chief investment officer at Le Bahnsen Group, a wealth management company based in Newport Beach, Calif., said in an emailed comment, according to Reuters.
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