S Korea leads Asia selloff as war on Iran sends oil surging

BENGALURU: South Korea led the decline in Asian markets on Tuesday, with a weaker won and plunging equities magnifying jitters across the region after US-Israeli war on Iran sent oil prices soaring and revived inflation fears for importers of the commodity.

The won fell 1.9 percent to a more than three-week low of 1,467.80, and the KOSPI sank 7.2 percent to mark the worst session in nearly four months, reflecting the strain on South Korea’s oil-import dependent economy.

Markets were shut on Monday, leaving South Korea to play catch-up to the breakout and expansion of military conflict in the Middle East. The rout tripped a five-minute “sidecar” halt on programme trading after KOSPI 200 futures fell more than 5 percent.

The US and Israel launched sweeping weekend strikes on Iran, killing Supreme Leader Ayatollah Ali Khamenei. Tehran retaliated by shutting the Strait of Hormuz, a corridor for about 20 percent of global oil flows.

Israeli Prime Minister Benjamin Netanyahu said he expected the war against Iran was “not going to take years”, as the conflict widened with Israel attacking Iran-backed Hezbollah targets in Lebanon and Iran hitting Gulf states that host US bases. Oil prices leapt, taking year-to-date gains to around 30 percent, including an almost 10 percent jump after the attacks.

The dollar index hit a six-week high on safe-haven demand and worries oil-driven inflation could curb the US Federal Reserve’s ability to cut rates this year.

Losses clustered in energy-importing currencies in holiday-thinned trade, with the baht falling 0.7 percent and the Philippine peso down 0.4 percent, extending Monday’s declines. The Taiwan dollar slipped 0.6 percent. The ringgit eased 0.2 percent, while the Singapore dollar and Indonesian rupiah were little changed. The yuan rose marginally.

Stocks in Kuala Lumpur and Manila clawed back some losses, up 0.7 percent and 0.1 percent, while Singapore’s STI added 0.9 percent after Monday’s steep drop. Taipei shares dropped 2.2 percent, and Tokyo stocks also fell 2 percent.

Investors seeking regional diversification may consider Asia ex-Japan equities – particularly Singapore stocks, Afdhal Rahman, executive director, wealth advisory, OCBC, said.

“The local market is increasingly viewed as a safe haven in the region, buttressed by predictable policymaking, a stable currency and a robust economy,” he added.

Rising crude prices are also rekindling worries that inflation across Asia could re-accelerate, narrowing the window for central banks to ease.

“Overall, we don’t think Asian central banks will hike rates just because of this risk, but it could delay rate cuts for the likes of the Philippines and Indonesia, and further reduce the probabilities of cuts for markets such as India and South Korea,” said Michael Wan, a senior economist at MUFG.