London (CNN Business)Global investors have been paying more and more attention to Evergrande, the sprawling Chinese real estate business on the brink. They're increasingly worried about what they see.
What's happening: Stocks in Europe tumbled Monday morning after Hong Kong's Hang Seng dropped 3.3%, suffering its worst decline in nearly two months. Chinese banks, insurers and other real estate companies were slammed. US futures are also sharply lower.
Shares of Evergrande Group (EGRNF) plummeted 10% in Hong Kong, hitting just 2.28 Hong Kong dollars ($0.29) per share. The stock has shed 84% so far this year.
Step back: Fear is growing about how the crisis at Evergrande will reverberate through the financial system. Over the last few weeks, China's most indebted developer — which has more than $300 billion in liabilities — has warned investors of cash flow issues, saying that it could default if it's unable to raise money quickly.
Evergrande now faces critical deadlines. It was supposed to repay interest on some bank loans on Monday, according to Bloomberg. The news outlet recently reported that Chinese authorities have told major banks that they won't receive those payments.
Big picture: The company holds about 6.5% of the total debt held by China's property sector, according to an estimate by UBS.
That's feeding fears that Evergrande could spark China's "Lehman moment," wherein the collapse of a single entity triggers panic across financial markets, as the fall of Lehman Brothers did in 2008.
"As a systemically important developer, an Evergrande bankruptcy would cause problems for the entire property sector, which has been an important source of economic growth and jobs in China," Ed Yardeni, president of Yardeni Research, wrote in a note to clients Monday.
Yardeni thinks a better comparison than Lehman is the blow-up of Long-Term Capital Management in 1998. In that case, the US Federal Reserve stepped in to orchestrate a bailout, limiting the damage to financial markets.
"We expect that the Chinese government will restructure Evergrande, probably by splitting up its businesses among other property developers," Yardeni said.
But the response from Beijing remains a major source of uncertainty that could weigh on investor sentiment in the coming days, especially in the face of inflation anxieties, debate over the US debt ceiling and supply chain problems.
In a note published Sunday, strategists at Goldman Sachs cautioned that the Chinese government needs to "carefully manage" Evergrande's potential default or restructuring, while delivering a clear message to help "shore up confidence and to stop the spillover effect."
Watch this space: The CNN Business Fear & Greed Index, which tracks the market mood, is in "fear" territory. The VIX, a gauge of potential US stock market volatility, shot up 20% on Monday, hitting its highest level since May.