Energy-dependent countries like Thailand are feeling the effects of an unprecedented rise in oil prices. Oil prices are also changing the outlook for Asian equity markets and foreign exchange markets.
In recent days, risks of a rise in consumer prices and disruptions to current-account balances have led to strong foreign outflows from equities in markets including India and South Korea, causing their currencies to weaken.
Some resource-rich nations, such as Australia and Indonesia, are among those who benefit from the downturn since the Russian invasion of Ukraine. The price of Brent crude climbed to $139 a barrel earlier this week due to sanctions against Russian oil.
According to David Chao, global market strategist for Asia Pacific ex-Japan at Invesco, “there is no better time to remain well-diversified than now.” Excessive exposure to natural resources and countries that are major commodity exporters makes sense.
The following is a look at how some Asian markets are faring in the face of rising energy prices:
In Thailand, just as the nation began opening up to international travel, crude oil prices are threatening the recovery in tourism. Another blow to the economy would be a probable loss of Russian tourists, the largest group of travelers in January.
Coal, iron ore, gold, and iron ore are just a few of the metals and minerals produced and exported by the country. According to RBC Europe, oil and natural gas account for more than 15% of Australia’s export earnings.
Materials firms make up a quarter of the benchmark S&P/ASX 200 Index, which has fallen 2% since Feb 23, the day before Russia’s invasion of Ukraine.
Compared to a more than 7% decline for MSCI Asia Pacific Index. Mining companies such as Cimic Group and Whitehaven Coal have risen at least 27% during that time, while the Australian dollar has gained more than 1% against the greenback as of late Friday in Asia.
Malaysia and Indonesia
Malaysia and Indonesia are the world’s two largest exporters of palm oil, a fact that has helped attract investors amid a global stock market slump. While the Jakarta Composite Index has held its ground, the rupiah is the sole gainer among Asian currencies since the Ukraine invasion.
Malaysian stocks have seen foreign inflows supported by a resilient ringgit. Despite a slight decline of over 1% since Feb 23, the local equity benchmark is performing better than the regional market.
Wai Ho Leong, a strategist at Modular Asset Management in Singapore, described it as the classic inflation hedge. I have my eye on Malaysian assets to buy on the cheap, he said, adding the currency is still “fundamentally undervalued.”
Oil Prices India
Foreigners are selling stocks at a record pace in India, which imports 85% of its oil needs. The exodus has forced the rupee to a record low. Since Feb 23, S&P BSE Sensex is down 2.9%, but buying by domestic funds amid a retail buying frenzy has helped limit equity losses.
In a country that is likely to be most exposed to the surge in Brent crude prices, the risk of inflation shock remains a challenge for the central bank and financial markets. Credit Suisse Group AG downgraded both Indian and Australian stocks to underweight in their Asia allocation earlier this month.
South Korea, another big oil importer, is also experiencing foreign selloffs that have weakened its currency due to oil prices. Since the invasion of Ukraine, the won has lost about 3% against the greenback, making it Asia’s second-worst performer.
Despite rising yields threatening to undermine earnings for its tech heavyweights, the Kospi Index, which was the region’s biggest 2022 loser among national equity benchmarks before the war, is down almost 11% year-to-date.
A slight improvement has been noted, since the new president-elect, Yoon Suk-yeol appears to be more business-friendly than his predecessor.
Oil Dependant China
Chinese markets, where regulatory concerns and oil prices have weighed heavily on share prices, have experienced a slightly different dynamic. Jian Chang, Barclays Plc’s chief China economist, said that China imports about 15% of its oil from Russia.
This means that it may be able to purchase it at a lower price because the U.S. and European demand have dried up.
In addition, Beijing has a wealth of policy tools that allow it to order state-owned oil refiners to cut profits.
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