Several of Asia’s key indexes have reached bleak milestones as investor concerns about the economic fallout from Ukraine’s war and continued regulatory pressure on China’s technology sector have grown.
The benchmark MSCI Asia Pacific Index fell as much as 2.8 percent on Monday, bringing its losses from a record set in February last year to more than 20 percent, putting it on track for a technical bear market. The technology and consumer discretionary sectors fared the worst.
Fears of a global inflation shock fueled Monday’s broad sell-off, as oil prices continued their relentless rise on the prospect of a Russian crude supply ban. The Hang Seng Index in Hong Kong fell to its lowest level in nearly six years, while a gauge of Chinese stocks listed in the city fell to its lowest level since March 2009. The Nikkei 225 in Japan fell more than 3%, making it one of the region’s worst performers.
Because of their reliance on imports to meet demand, some of Asia’s emerging markets, such as India, South Korea, and Thailand, are particularly vulnerable to an increase in oil prices. Since Russia’s invasion of Ukraine late last month, Indian stocks have been among the worst performers.
“The Ukraine-Russia conflict will continue to dominate market sentiments, and with no signs of a resolution thus far, risk sentiments may be capped,” said Jun Rong Yeap, a market strategist at IG Asia Pte. “Elevated oil prices may pose a threat to firms’ margins and the outlook for consumer spending at a time when the Fed will face greater pressure to overcorrect with faster and larger rate hikes in response to inflationary pressure.”
In Hong Kong, the Hang Sang Tech Index fell by more than 5%. Higher inflation and interest rate expectations imply a larger discount for the present value of future profits, which hurts growth stocks with the highest valuations. Asian equities have struggled as investors grapple with renewed concerns about China’s crackdown on private enterprise at a time when the region’s earnings growth is already trailing global peers.
“It’s difficult to be optimistic,” said Resona Asset Management’s chief strategist, Mamoru Shimoda. “The volatility is far too high.” It is very high in all markets. Other markets will be unable to stabilize as long as the oil market does not stabilize.”
On the plus side, Beijing announced on Saturday a GDP growth target of “about 5.5 percent” for 2022, which is at the higher end of many economists’ estimates. Nonetheless, China’s stock market was not immune to Monday’s selloff, with the benchmark CSI 300 Index falling as much as 2.4 percent.
The MSCI Asia Pacific Index is now down nearly 10% in 2022, after trailing its peers in the United States and Europe by a wide margin last year. The S & P 500 Index is down about 9% so far this year, while the STOXX Europe 600 Index is down nearly 14%.
“The demand shock, namely the disappearance of exports to Russia, will be concentrated in Europe and will be insufficient to derail the global economy,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management. “The global economy can withstand oil prices of around $120 per barrel.” However, if they rise to $150-160, there will be a recession, and investors’ assumptions about the global economic recovery will have to be revised.”
MONDAY’S MARKETS IN A SNAP:
- The MSCI Asia Pacific Index has fallen 2.6 percent.
- Japan’s Topix index is down 3%, while the Nikkei 225 is down 3.3 percent.
- The Hang Seng Index in Hong Kong fell 3.3 percent; the Hang Seng China Enterprises fell 3 percent; the Shanghai Composite fell 1.5 percent, and the CSI 300 fell 2.4 percent.
- India’s S&P BSE Sensex fell 2.5 percent, while the Nifty 50 fell 2.4 percent.
- Taiwan’s Taiex index is down 3.1%
- South Korea’s Kospi index fell 2.2 percent, while the Kospi 200 fell 2.3 percent.
- The S&P/ASX 200 in Australia is down 1%, while the S&P/NZX 50 in New Zealand is down 1.7 percent.
- Singapore’s Straits Times Index fell by 0.7 percent; Malaysia’s KLCI fell by 1.4 percent; the Philippine Stock Exchange Index fell by 2.2 percent; the Jakarta Composite fell by 0.9 percent, and Vietnam’s VN Index fell by 0.3 percent.