SINGAPORE, RAW – A global stocks sell-off has extended into the Asia morning, as growing fears about the global economy forced investors to dump riskier assets in favour of safe havens such as the US dollar and government bonds.
Financial markets, already anxious about the prospects for aggressive US interest rate hikes, a spike in global inflation and the Ukraine war, were rattled this week over slowdown fears in China as Beijing stuck firm to stringent COVID-19 lockdowns.
News of Russia cutting gas supplies to eastern Europe added to Tuesday’s sombre mood, sending the MSCI world equity index slumping to a 13-month low.
There was little let-up in the selling in Asia, with MSCI’s broadest index of Asia-Pacific shares outside Japan down 1.1 per cent to its lowest level since March 15. Tokyo’s Nikkei and Seoul’s KOSPI index were also down sharply by 1.8 per cent and 1.19 per cent respectively.
Chinese blue chips were flat after falling to their lowest in two years on Tuesday and the Hong Kong benchmark fell 0.72 per cent. Australian shares were also down 0.73 per cent.
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The catalysts for the latest declines “were yet more bellicose words from Russia over Ukraine, and the announcement that Bulgaria and Poland would see their gas supplies from Russia shut off from today”, ING said in a note.
Russia, which has been demanding payments for its gas in roubles as sanctions over its invasion of Ukraine bite, said it would halt supplies to Poland and Bulgaria from Wednesday.
The move sent oil and gas prices higher. Brent crude futures rose $US1.11, or 1.1 per cent, to $US106.10 a barrel. US West Texas Intermediate crude futures rose 84 cents, or 0.8 per cent, to $US102.54 a barrel.
China’s central bank said this week it would support its economy as worries grew that Beijing’s insistence on continuing with a “zero-COVID” policy would harm domestic and global growth while further intensifying supply snags.
The dollar, which hit a two-year high this week, rallied further against a basket of rival currencies to 102.34, as did gold, which edged higher to settle at $US1,903 an ounce.
Markets worry that an expected streak of rate increases by the Federal Reserve could hurt growth just when many economies have started to recover from the pandemic-driven slumps.
Investors have also been fretting about volatile commodity prices because of the Ukraine war, with the International Monetary Fund warning this week about stagflationary risks in Asia.
The overnight sell-off on Wall Street underlined investor anxiety about the hit to earnings, with the Nasdaq down four per cent, its lowest since late 2020.
US treasury yields also slipped on safety-bid, with the yield on benchmark 10-year Treasury notes down 5.5 basis points to 2.772 per cent, while yields on three-month bills to 30-year bonds were all lower on the day.