The Chinese property giant has amassed debts of US$300bil and is facing deadlines for payments to banks and bondholders this week.
A potential default, according to analysts, will likely contribute to China's economic deceleration and derail global growth and inflation. Commodity prices are also expected to be negatively impacted.
Fears over a fallout are growing and affecting global investor sentiment. Bursa Malaysia, which had seen a return of foreign investors of late, recorded a second straight day of net foreign selling yesterday, to the tune of RM120.8mil.
At 9.05am, the FBM KLCI was down 6.34 points, putting the market on track to an eighth straight session of losses.
"Given the negative Wall Street overnight, we believe the market may perform a knee jerk selling at the opening bell and bargain-hunting activities may emerge once the selling pressure is overdone," said Malacca Securities Research.
However, the research house noted potential developments on the local front as the government discusses the possibility of allowing interstate tourism, which may be seen as a mode for gradual economic recovery, cushioning the downside risk in the near term.
Among decliners, Hong Leong Bank slid six sen to RM18.64, Petronas Gas shed 20 sen to RM16.66 and Petronas Chemicals was down one sen to RM7.94.
Genetec dropped RM1.10 to RM33.10, MPI fell 60 sne to RM43.60 and SAM Engineering was down 16 sen to RM13.46.
Top actives were EA Holdings unchanged at two sen , Yong Tai down 0.5 sne at 15.5 sen and KNM flat at 25 sen.
In regional markets, Japan's stock exchange resumed trading after a national holiday, sliding 2% as it joined the global rout.