BENGALURU: Emerging Asian shares retreated on Thursday as new fault lines between the US and Iran raised concerns over the durability of a fragile Middle East ceasefire, exacerbating fears about the potential impact on economies exposed to oil shocks.
The MSCI gauge of EM Asia equities slipped about 1 percent from a one-month high scaled the prior day, dragged by a 1.6 percent drop in South Korea’s KOSPI. An index tracking global EM stocks eased 0.9 percent from a five-week high as oil futures rose with energy flows through the Strait of Hormuz staying restricted as Iran flexed control over the vital oil artery.
Israel pounded Lebanon with its heaviest strikes yet on Wednesday, killing hundreds of people and drawing a threat of retaliation from Iran, which suggested it would be “unreasonable” to proceed with talks to forge a permanent peace deal with the US
“The cracks that are appearing in this latest ceasefire agreement are mostly due to the mixed messaging from the parties involved,” said Isaac Lim, chief markets strategist at online trading platform Moomoo.
“In the event of a breakdown before the two weeks are up, oil export dependent countries like South Korea, Thailand, Malaysia and Philippines will be required to dig deeper into their reserves and, in worse case scenario, ask for external help from both a physical reserve and funding perspective.”
Energy-dependent Asian economies are exposed to oil price volatility, which threatens to stoke inflation and strain economic growth.
Shares in Kuala Lumpur fell 0.8 percent, while stocks in Singapore slid about 0.4 percent and those in Jakarta were flat.
Currencies in the region were also on the back foot.
The Indonesian rupiah slipped to 17,090 a dollar, retesting the 17,100 mark it touched earlier in the week, while the Philippine peso weakened 0.5 percent to 59.729 per dollar.
In Thailand, stocks extended their winning streak to a third day, edging higher to hover near a five-week high. The baht remained anchored around a one-month high of 32.06 a dollar it touched the previous day.
Recently re-elected Thai Prime Minister Anutin Charnvirakul outlined his government’s policy agenda to parliament with a focus on growth, debt relief and measures to reduce business costs.
The Bank of Thailand said it will keep policy rates on hold, while it monitors inflation risks. Earlier this week, data showed that Thailand’s inflation unexpectedly dipped in March.
The Philippine stock market was closed for a holiday.
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