Oil Plunge Signals Bigger Issues for Asia Equities

(Bloomberg) -- Asia’s stock market reactions this morning are signaling that a plunge in U.S. crude futures below zero for the first time in history is more than just an extreme supply and demand mismatch.

Earlier today, West Texas Intermediate futures dipped as low as minus $40.32 before rising back to $2 a barrel. What should have been seen as good news for Asia’s oil importers has not translated into positive stock market moves, pointing to how bigger concerns about the global recession are outweighing the benefits of cheaper crude prices.

“It rings the bell out loud, that this global recession is real and it’s here,” said Kay Van Petersen, global macro strategist at Saxo Capital Markets Pte.

While many Asian nations, such as Japan, India and China, will benefit from lower crude prices in the medium to long term, “this clear evidence of demand destruction is a negative for stocks in the short term,” according to Michael McCarthy, chief market strategist at CMC Markets Asia Pacific Pte.

Oil Plunge Signals Bigger Issues for Asia Equities

Japan’s Topix fell as much as 1.3% on Tuesday, while China’s stock benchmark was down by a similar amount. India’s Sensex Index declined 2.6%. South Korea’s Kospi extended early morning losses after news about Kim Jong Un being in critical conditions hit the wire.

Indexes in Japan and Hong Kong are the “most vulnerable” because they “have swung hardest on sentiment lately,” said McCarthy.

MarketEnergy Weighting
CSI 300 Index1.8%
Topix Index0.7%
Hang Seng Index4.4%
Kospi Index1.8%
Sensex Index12.5%
S&P/ASX 200 Index3.8%
Source: Bloomberg

Shares of some Asian companies involved in exploration, trading, and shipping of oil such as JGC Holdings Corp., Hyundai Mipo Dockyard Co. and Korea Shipbuilding & Offshore Engineering Co. dropped more than 5% in early trading.

While regional energy shares have taken a hit, cyclicals such as industrials are “not far behind” because the concern “is the shortage of demand for energy reflects the lack of activity,” said Jingyi Pan, market strategist at IG Asia Pte.

See also:
  • Asia Stocks Wrap
  • Global Markets Wrap
  • Markets Live Blog

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