Ukraine War Puts Asia’s Stock Gauge on Track for Bear Market

(Bloomberg) — Several of Asia’s key indexes have hit bleak milestones on growing investor concerns about the economic fallout of the war in Ukraine and sustained regulatory pressure on China’s technology sector.

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The benchmark MSCI Asia Pacific Index tumbled as much as 2.8% on Monday, taking its losses from a record reached in February last year to more than 20% — which puts it on course for a technical bear market. Technology and consumer discretionary sectors were the worst performers.

Monday’s broad rout was sparked by fears of a global inflation shock as oil prices extended their relentless surge on the prospect of a ban on Russian crude supplies. Hong Kong’s Hang Seng Index slid to its lowest level in almost six years, while a gauge of Chinese shares listed in the city sank to its weakest level since March 2009. Japan’s Nikkei 225 lost more than 3% to be among the region’s worst performers.

A surge in oil prices makes some of Asia’s emerging markets such as India, South Korea and Thailand particularly vulnerable given these nations’ dependence on imports to meet their demand. Indian stocks have been among the top losers since Russia invaded Ukraine late last month.

“The Ukraine-Russia conflict will continue to dominate market sentiments and no signs of a resolution thus far may likely put a cap on risk sentiments,” said Jun Rong Yeap, a market strategist at IG Asia Pte. “Elevated oil prices may pose a threat to firms’ margins and consumer spending outlook at a time when the Fed will face greater pressure of having to overcorrect with quicker and larger rate hikes in light of inflationary pressure.”

The Hang Sang Tech Index plunged more than 5% in Hong Kong. Expectations of higher inflation and interest rates mean a bigger discount for the present value of future profits, hurting growth stocks with the highest valuations. Asian equities have struggled as investors also grapple with renewed concerns about China’s crackdown on private enterprise at a time when earnings growth in the region is already lagging global peers.

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“It’s hard to be optimistic,” said Mamoru Shimode, chief strategist at Resona Asset Management. “Volatility is way too high. It’s high in all markets. As long as the oil market doesn’t stabilize, other markets won’t be able to.”

On the positive front, Beijing on Saturday announced a gross domestic product growth goal of “about 5.5%” for 2022, at the higher end of many economists’ estimates. Still, China stocks weren’t immune to Monday’s selloff, with the benchmark CSI 300 Index losing as much as 2.4%.

The MSCI Asia Pacific Index is now down almost 10% in 2022 after trailing its peers in the U.S. and Europe last year by a wide margin. The S&P 500 Index is down about 9% so far this year while the STOXX Europe 600 Index has slumped nearly 14%.

“The shock to the demand side, namely disappearance of exports to Russia, will be concentrated to Europe and is not large enough to derail the global economy,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management. “The world economy can manage to withstand oil prices around $120 per barrel. But if they rise to $150-160, there will be a recession and investors will have to change their scenarios that the global economic recovery will continue.”

MARKETS AT A GLANCE MONDAY:

MSCI Asia Pacific Index down 2.6%
Japan’s Topix index down 3%; Nikkei 225 down 3.3%
Hong Kong’s Hang Seng Index down 3.3%; Hang Seng China Enterprises down 3%; Shanghai Composite down 1.5%; CSI 300 down 2.4%
India’s S&P BSE Sensex down 2.5%, Nifty 50 down 2.4%
Taiwan’s Taiex index down 3.1%
South Korea’s Kospi index down 2.2%; Kospi 200 down 2.3%
Australia’s S&P/ASX 200 down 1%; New Zealand’s S&P/NZX 50 down 1.7%
Singapore’s Straits Times Index down 0.7%; Malaysia’s KLCI down 1.4%; Philippine Stock Exchange Index down 2.2%; Jakarta Composite down 0.9%; Vietnam’s VN Index down 0.3%