[SINGAPORE] Asia markets weakened on Monday (Mar 9) as investors grow increasingly nervous about the impact of a widening Middle East conflict and rising oil prices.
The Straits Times Index (STI) fell as much as 3.1 per cent before paring some losses to close 1.9 per cent down. The Kuala Lumpur Composite Index was down 2.6 per cent, while the Jakarta Stock Exchange Composite Index declined 3.3 per cent as at 4 pm local time and Thailand’s SET50 index fell 2.3 per cent.
Prices of oil climbed past US$100 a barrel – the highest since Russia’s invasion of Ukraine in mid-2022 – as West Texas Intermediate crude oil was up 29 per cent at more than US$117. Brent crude also surged as much as 28 per cent to US$118.73, in what was its biggest jump in nearly six years.
“The geopolitical risk premiums have spiked,” said Selena Ling, chief economist and head of OCBC Group Research, adding that the duration of the conflict and any potential stabilisation action will be key.
With Singapore exposed to crude oil and liquefied natural gas prices as a small open net importer, the current conflict could have as big of an impact as the Gulf War did, if not more.
“There is definite upside risk to inflation,” said Ling. She noted that while the pre-war base case assumed oil at US$63, a sustained average of US$92 would push inflation to 1.8 per cent.
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With prices now well above that level, the Singapore consumer price index could even shoot up beyond 2 per cent if the oil price surge is sustained, she warned, even if the weight of physical petroleum is relatively low. This would largely be due to knock-on effects on logistics and transport, as well as other supply chains.
Sustained price pressure could force the Monetary Authority of Singapore to tighten monetary policy “earlier rather than later”, challenging the previous outlook for easing, OCBC noted in a separate report on Monday.
However, the bank emphasised that Singapore’s fiscal position remains the “most flexible” in the region, with ample room to deploy support measures like utilities rebates for households if costs spiral.
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Beyond energy, the conflict has created a potential divide in the aviation sector. While carriers like Singapore Airlines , which fell 2.4 per cent on Monday, face margin compression from soaring jet fuel costs, OCBC identified ground handler SATS as a potential beneficiary, though it fell 3.8 per cent.
The bank argued that a blockade of the Strait of Hormuz could force time-sensitive trade to shift from sea to air, driving up air freight volumes. Defence counters like ST Engineering are also expected to see support from structurally higher security spending.
In the rest of Asia, Hong Kong’s Hang Seng Index fell 1.4 per cent over the day and the CSI 300 in Shanghai closed 1 per cent lower.
Japan’s Nikkei 225 was down 5.2 per cent at close, while the Topix dropped 3.8 per cent. South Korea’s Kospi slumped 6 per cent and Australia’s ASX 200 ended the day 2.9 per cent lower.
South-east Asia impact
Beyond the potential inflow of wealth, Singapore may also benefit from a stronger currency, while Malaysia’s net oil export status could also prove to be some protection.
Research firm BMI on Friday gave Malaysia the fifth-lowest risk score when measuring the impact of the US-Israel-Iran conflict on 24 emerging markets. Its research examined factors such as each market’s trade disruption due to the effectively shut Strait of Hormuz, terms of trade and external position.
Oil exporters such as Malaysia could “receive a windfall from higher gas prices”, said the note. Conversely, countries such as the Philippines are most likely to face downward pressure on their currencies and strains in their balance of payments.
Thailand was flagged as one of the markets suffering the greatest impact, owing to the country having an energy deficit as large as 4 per cent of its gross domestic product.
Asian currencies are also affected and are diverging based on their specific exposures to oil prices and market risk, said OCBC on Monday. The South Korean won and Philippine peso appear most vulnerable, facing a “double whammy” from both high energy costs and investor anxiety. Similarly, the Indonesian rupiah is weighed down by expensive oil imports.
Among those currencies, the Malaysian ringgit is cushioned by the country’s oil exports, which help offset broader market volatility, while the Chinese yuan and Singapore dollar remain the most resilient.
OCBC also noted that policy fallout could be severe for Singapore’s neighbours. It warned that an “acute” scenario, where oil spikes towards US$140, would likely take rate cuts off the table for the region. Instead, central banks in the Philippines and Indonesia could be forced to hike rates by 25 basis points to defend their currencies and curb inflation, risking a sharper economic slowdown.
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