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Thursday, August 11, 2022

Asian markets struggle, oil retreats

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Asian markets struggled again Tuesday, with Hong Kong tech firms leading another sharp equity selloff in the city following the Covid-19 shutdown of tech hub Shenzhen and worries over Russia’s military outreach to China.

Hopes for progress in talks to bring an end to the war in eastern Europe were also putting pressure on the black gold.

Global markets have been in a spiral since Russian troops marched into the neighbouring country, leading international powers to impose crippling sanctions on the country and numerous companies to pull out.

Read Also: Asian Markets Up as Oil Extends Gains

The measures have fanned concerns about the supply of commodities from the region, particularly oil, sending prices through the roof and ramping up fears that already high inflation would run out of control and shoot a hole through a fragile economic recovery.

Among the hardest-hit markets has been Hong Kong, which was already under pressure from China’s regulatory crackdown on technology firms as part of the government’s move to tighten its grip on the economy.

News that US authorities were also looking to crack the whip over Chinese firms listed in New York sparked a rout last week. And the selling continued Monday after news emerged of the Shenzhen lockdown.

The Hang Seng Index dived five per cent as the Hang Seng Tech Index was pummelled 11 per cent after China said it would lock down Shenzhen to contain a Covid-19 outbreak.

Another trouncing came later in the day in New York, exacerbated by news that Putin had asked China for military assistance in its battle in Ukraine.

Traders are fretting that Chinese companies could face sanctions or delisting if Beijing reacts positively to Russia’s plea.

A “material rerating for China tech may need to see a shift in regulatory tone”, Marvin Chen, a strategist at Bloomberg Intelligence, said, adding that interplay between Moscow and Beijing would be closely followed.

“Delisting fears and renewed Covid pressures delivered a double-whammy to the few bulls left. There’s wholesale liquidation and even optimists think the space is just too hard right now.”

And Sharif Farha, at Safehouse Capital, added: “The issue right now is the lack of a positive catalyst in China with regulatory noise continuing to create an overhang” on US-listed Chinese firms.

“In the short term, we think overall Chinese equities will continue to face selling pressure. Longer-term, the strong will survive and likely get stronger, bigger.”

The Hang Seng Index dived around four per cent on Tuesday morning before bouncing slightly on bargain-buying and data out of China suggesting the economy started 2022 on a positive note.

Shanghai, Sydney, Seoul, Taipei, Manila and Wellington were also well down, though Tokyo, Singapore, Jakarta and Bangkok edged up.

While data out of China beat forecasts, unemployment jumped and the shutdown in Shenzhen along with a surge in Covid-19 cases across the country has ramped up concerns the giant economy will see another growth slowdown.

They could also lead to more supply chain snarls, which can add to inflation.

That, in turn, has seen traders cut their expectations for demand from the world’s biggest oil importer, with WTI dropping to as low as $96.70, well down from the 14-year peak of $130.50 touched last Monday.

Brent was also sharply down at $100.05, from its peak last week of $139.13.

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