Monday Mar 09 2020

Coronavirus fears and drop in oil prices trigger collapse of Asian markets

A woman wearing a face mask walks past an electronic board showing Asian stock index overview and news report on the oil market at a shopping mall in Bangkok on March 9, 2020. Photo: AFP

HONG KONG: Coronavirus fears and a crash in oil prices triggered a panic as stocks around the world plunged with energy firms taking the brunt of the hammering across Asia.

As the deadly disease claims more lives around the world, dealers are fleeing out of riskier assets and into safe havens, sending gold and the yen surging and pushing US Treasury yields to new record lows.

While governments and central banks have unleashed or prepared to roll out stimulus measures, the spread of COVID-19 is putting a huge strain on economies and stoking concerns of a worldwide recession.

Trading floors were a sea of red, with Tokyo, Sydney and Manila plunging around 6%, while Hong Kong shed 3.5% by lunch.

An electronic ticker board displays various stock prices as mask-clad people gather by a fountain at Exchange Square in Hong Kong on March 9, 2020. Photo: AFP

Mumbai, Singapore, Seoul, Jakarta and Wellington were more than 3% down, Shanghai and Taipei shed at least 2% and Bangkok gave up 5%. The losses tracked sharp falls in Europe and Wall Street on Friday.

Driving the declines was a ferocious sell-off in the oil markets, sparked by top exporter Saudi Arabia slashing prices — in some cases to unprecedented levels — after a bust-up with Russia over production.

Also read: Wall Street Week Ahead: Investors look for buys as virus fears crush travel stocks

Both main oil contracts — which had already been under pressure over falling demand caused by the virus — dived around 30%, marking the worst drop since the 1991 Gulf War and the second biggest fall on record, according to Bloomberg News.

Saudi Arabia launched an all-out oil war on Sunday with the biggest cut in its prices in the past 20 years, Bloomberg News reported, after OPEC and its allies failed to clinch a deal to reduce output.

A meeting of main producers was expected to agree to deeper cuts to counter the impact of the coronavirus — but Moscow refused to tighten supply.

In response, Riyadh slashed its price for April delivery by $4-$6 a barrel to Asia and $7 to the United States.

Russia's decision not to comply had already battered prices and there are warnings that prices could continue to drive lower if the two sides do not reach an agreement.

"It's unbelievable, the market was overwhelmed by a wave of selling at the open," said Andy Lipow, at energy consultancy Lipow Oil Associates.

"OPEC+ has clearly surprised the market by engaging in a price war to gain market share."

Energy firms hammered

Jeffrey Halley, senior market analyst at OANDA, said: "Saudi Arabia seems intent on punishing Russia.

"Oil prices... will likely be capped over the next few months as coronavirus stalls economic growth, and Saudi Arabia opens the pumps and offers huge discounts on its crude grades."

Energy firms were slammed, with Hong Kong-listed CNOOC tumbling 16 percent and PetroChina down 10%, while in Tokyo, Inpex dived 13% and Woodside Petroleum in Sydney fell 17%.

"Plummeting oil prices and spreading coronavirus are fanning fears of downside risks to the global economy," said Takuya Kanda, at Research Institute.

Foreign exchange markets were also extremely volatile, with traders snapping up the yen — seen as a hedge against global instability — and selling off the dollar owing to uncertainty over the coronavirus in the United States.

Also read: Global markets extend slump as coronavirus crisis deepens

Marito Ueda, senior trader at FX Prime, told AFP: "Fears over the virus's impact on the global economy and a plummet in US yields had investors seeking the safe-haven yen."

"It is essentially a flight from the dollar," he added.

The greenback fell below 103 yen, levels not seen since the third quarter of 2016.

Analysts warned of further gyrations as the outbreak shows no sign of abating, with more than 100,000 people infected in 99 countries.

Italy, which is now the hardest hit country outside China, has put a quarter of its population in lockdown, while sporting and public events around the world have been cancelled.

Also read: Coronavirus cases surge as WHO sounds maximum alert, stocks crash to lowest since 2008 crisis

"You just don´t know which way things are going to go, it makes it very hard to price anything right now," said Sarah Hunter, chief economist for BIS Oxford Economics, on Bloomberg TV.

"We're seeing that in the market with the wild oscillations that are coming through."

Key figures around 0410 GMT

Brent Crude: DOWN 29.9% at $36.05 per barrel

West Texas Intermediate: DOWN 30.9% at $28.52

Tokyo - Nikkei 225: DOWN 5.9% at 19,536.01

Hong Kong - Hang Seng: DOWN 3.5% at 25,230.55 (break)

Shanghai - Composite: DOWN 2.4% at 2,961.29 (break)

Gold: UP 1.7% at $1,702 per ounce

New York - Dow: DOWN 1.0% at 25,864.78 (close)

London - FTSE 100: DOWN 3.6% at 6,462.55 (close)