Here’s How Oil’s Historic Boom Is Affecting Asia’s Stock Markets

Rising consumer prices and risks of disruption in current account balances have fueled strong foreign outflows from equities in markets such as India and South Korea in recent days, weakening their currencies.

Some resource-rich nations, such as Australia and Indonesia, are among the beneficiaries as their markets are on hold amid the slowdown since Russia’s invasion of Ukraine. Sanctions against Russian oil pushed the price of Brent crude up to $139 a barrel in the week.

“There could be no more opportune time than now for investors to remain well-diversified in assets,” said David Chao, global market strategist for Asia Pacific East Japan at Invesco Ltd. It is understandable to be overweight in natural resources and countries that are the largest commodity exporters of energy, agriculture and metals.”

Here’s a look at how some of the Asian markets fare in the face of higher energy prices:

Australia

The country is a world leader in the production and export of metals and minerals, including coal, iron ore and gold. According to RBC Europe Ltd, oil and natural gas account for more than 15% of Australia’s export earnings.

The benchmark S&P/ASX 200 index, where physical firms account for a quarter of the weight, declined 2% since February 23, the day before Russia’s invasion of Ukraine. This versus a slide over 7% for the MSCI Asia Pacific Index. Miners such as Simic Group Ltd and Whitehaven Coal Ltd have gained at least 27% during the period, while the Australian dollar was up more than 1% against the greenback in Asia as of late Friday.

India

In India, which imports about 85% of its oil needs, foreign stocks are selling off at a record pace and the exodus has sent the rupee to a record low. The benchmark S&P BSE Sensex is down 2.9% since February 23, with buying by domestic funds helping equities limit losses amid the retail-trade frenzy.

Still, the risk of an inflationary shock poses a challenge to central banks and financial markets in a country most vulnerable to a surge in Brent crude. Earlier this month, Credit Suisse Group AG reduced its Asia allocation by double-downgrading Indian shares while upgrading Australia.

Indonesia, Malaysia

Indonesia and Malaysia are the world’s top two exporters of palm oil, a situation that has helped attract investors amid a global stock rout. The Jakarta Composite Index has held its own, while the rupee is the only gainer among Asian currencies since the Ukrainian invasion.

Investors Punished by Selloff Find Rare Haven in Malaysia Assets

A resilient ringgit supported overseas inflows into Malaysian stocks. Down a little over 1% since February 23, the local equity benchmark is outperforming the regional market.

“It’s a classic inflation hedge,” said Wai Ho Leong, a strategist at Modular Asset Management in Singapore. “I am looking to buy Malaysian assets cheap,” he said, adding that the currency is still “fundamentally low.”

South Korea

Another major oil importer, South Korea, is also seeing an overseas sell-off that has contributed to the weakness in its currency. The win is about 3% less than the greenback, who is the second worst performer in Asia since the invasion of Ukraine.

The Kospi index, which was the sector’s biggest 2022 loser among national equity benchmarks before the war broke out, is down nearly 11% year-on-year as rising yields threaten to dent its tech giant’s earnings. The outlook has improved slightly as the new President-elect Yoon Suk-yol is expected to be more business friendly than his predecessor.

China

The dynamics are slightly different for the Chinese markets, where regulatory concerns are affecting share prices. According to Jian Chang, chief China economist at Barclays plc, China imports about 15% of its oil from Russia and may be able to pay lower prices for those imports due to lower demand from the US and Europe. A wealth of policy tools also mean Beijing could order state-owned oil refiners to cut profits to drive down fuel prices.

Thailand

As the nation begins to open up to international travel, Thailand’s tourism-dependent economy is threatening a nascent recovery from rising fuel costs. The economy will be dealt another blow in January by the potential loss of Russian tourists, the largest group of travellers.

The baht is Asia’s worst-performing currency since the invasion of Ukraine, while the SET index is down more than 2%.