(Bloomberg) --
A war for oil market share in a world battling a deadly epidemic is proving to be a nightmare for equities. And in Asia, they’re succumbing to bear markets one by one.
Shares in Japan, the Philippines, Singapore and Indonesia have plunged more than 20% from their highs, while those in Australia are nearly there and Hong Kong stocks are less than 3% away. The Lehman-like panic after Monday’s crash in oil prices added to the grim backdrop of the virus outbreak that has infected almost 110,000 people worldwide and killed more than 3,800.
“No one can price risk now, uncertainty is way too high because of the nature of the contagion,” said Nader Naeimi, the head of dynamic markets at AMP Capital Investors in Sydney. “Saudi’s war on oil is coming at a time of significant market fragility.”
All attempts to find relative havens in Asia equities and buy on dips amid the stimulus measures recently announced got squashed in volatile trading as the specter of a global recession rises. Risk assets slumped globally on Monday as oil sank more than 30% after the disintegration of the OPEC+ alliance triggered an all-out price battle between Saudi Arabia and Russia that is likely to have sweeping political and economic consequences.
“This is a global risk-off event and as such international portfolio managers are reducing risk exposure and typically see Asian equities as cyclical and risky,” said Rainer Michael Preiss, equity chief investment officer at the Global CIO Office. “The 30% drop in crude oil prices could be seen as signal that global growth could be at risk.”
U.S. Treasury yields tumbled on Monday, with the entire curve trading below 1% for the first time in history. Markets are now pricing the Federal Reserve will cut rates to 0% in the coming months. American stock-index futures slumped, with the losses triggering exchange rules that limit declines to 5%.
The spasms suffered by S&P 500 futures will extend a slide that could leave the index within 4% of the bear market. Meanwhile European equities had their biggest one-day decline on Monday since 2016 and were set to enter the bear territory.
“We have downgraded our overall equities positioning to underweight from neutral to take account of spreading concerns about Covid-19,” Pictet Wealth Management analysts wrote in a note. “Given the current lack of visibility, financial markets are starting to anticipate quite a negative scenario.”
World’s Worst
With Monday’s tumble, Japan’s equity market has now become one of the world’s worst for the year, provoking some participants to question the uptrend in place since Prime Minister Shinzo Abe started his reforms. The benchmark Topix index tumbled 5.6%, down more than 20% from a high in December. The Nikkei 225 Stock Average fell 5.1%, breaking through the key 20,000 mark for the first time since January 2019.
“The upward market we’ve been seeing since Abenomics could be reversing,” said Norihiro Fujito, the chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “Japan’s economy will likely contract in the March quarter due to the virus, and I don’t think the situation will end in March.”
Joining Japan to rank among the worst markets are Philippine equities. The nation’s benchmark tumbled 6.8% on Monday, the most since October 2008, and taking its decline from a July high to 25%. The Jakarta Composite Index, which sank more than 5% to start the week, and the Straits Times Index, down 6%, also settled in bear markets on Monday. Malaysia and Thailand entered one in the last week of February.
Kerry Goh, chief investment officer at Kamet Capital Partners Pte. in Singapore, sees some differentiation panning out in the virus-wrecked markets of the region.
“The outlook in Asia will be pretty divided,” he said. “Countries that exhibit a better control of the spread of the virus will outperform. Next, the technology and health-care sectors should outperform.”
Still, equity strategists and portfolio managers from Tokyo to Manila are struggling to call the end of the rout that has wiped billions of dollars from Asian stocks as the deadly virus keeps threatening lives and economies across the world.
“We don’t see the bottom yet” as it appears that the virus outbreak has yet to peak, said Manny Cruz, a strategist at Papa Securities Corp.. “Right now, cash is king.”
©2020 Bloomberg L.P.
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