European shares avoided the sell off that had swept Asian markes overnight, even as oil prices rose again amid few signs that the Iran war is likely to end quickly.
The benchmark Stoxx Europe 600 had risen 0.1 per cent by 9.20 am while Ireland’s Iseq All Share index climbed 0.7 per cent. The UK FTSE 100 slid 0.3 per cent while France’s CAC40 and Germany’s Dax index were little changed. Brent crude oil jumped once more, adding 3.7 per cent to hit $84 per barrell.
The European stock market contrasted sharply with Asia over night, with investors there dumping positions in chipmakers for fear the Middle East war will drive an oil shock that fuels inflation and delays interest rate cuts.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 4.2 per cent. Seoul’s benchmark KOSPI shed more than 11 per cent to trigger a circuit breaker, while Japan’s Nikkei and Taiwan’s index dropped more than 4 per cent each.
Panic swept across trading desks in South Korea as local stocks, by far the hottest in the world over the past year, extended their free-fall.
Down more than 12 per cent at one point following a 7.2 per cent drop in the previous session, the high-flying Kospi Index was headed for its biggest single-day slide since 2008.
The losses were driven by the heavyweights that had supercharged the market higher until last month — Samsung Electronics, SK Hynix, and Hyundai Motor.
From Wall Street strategists to amateur traders who had just started to pile into the market, the plunge came as a surprise.
The artificial intelligence boom had helped push the Kospi up nearly 50 per cent this year at its peak. Sentiment was euphoric, forcing analysts to raise their already-bullish forecasts to keep up with the gains.
Yet that momentum is unravelling fast — with forced selling of leveraged bets likely accelerating the losses.
As surging oil prices on the Iran war threaten a spike in inflation and pressures importers — Korea is the world’s eighth-largest crude consumer — investors are rethinking overheated equity bets.
Global oil and gas prices have jumped as the strikes on Iran disrupts energy exports from the Middle East, with Tehran’s retaliatory attacks on ships and energy facilities closing navigation in the Gulf and forcing production stoppages from Qatar to Iraq.
European gas prices are up 70 per cent since the end of last week.
The dollar held firm near a three-month high in Asia on Wednesday, with investors retreating from the euro.
The euro slipped 0.2 per cent to $1.1590, extending losses into a third day after earlier hitting its weakest since late November.
That followed data released on Tuesday which showed euro zone inflation at a higher than expected level in February before the start of the Iran conflict.
Trading in both Kospi and Kosdaq shares was suspended for 20 minutes after the gauges fell by the 8 per cent threshold.
In a sign that authorities are preparing for potential spill-over of volatility into broader markets, Lee Eog-weon, chairman of the Financial Services Commission, asked relevant institutions on Tuesday to actively use contingency plans if needed.
Foreign funds were net sellers of Kospi stocks through midday. Retail investors added positions, though at a much slower pace than in the previous session. The Kospi 200 Volatility Index, a gauge of option prices, spiked to the highest since November 2008.
“Local brokers started halting providing margin and we’re seeing retail buy-the-dip much weaker today,” said Shawn Oh, an equity trader at NH Investment & Securities in Seoul. “We might see further weakness during the last hour of trading due to fears of margin call.”
Not all stocks were down. Energy shares Daesung Energy, Kukdong Oil & Chemicals and Korea Petroleum Industries all rose about 30 per cent.
This “may create select opportunities to build positions in companies and industries that are now trading at attractive prices,” said Park Sojung, a portfolio manager at Matthews Asia.
“Korean industrials such as defense and shipbuilding may again be highlighted as beneficiaries of global instability, constrained supply, and Korea’s growing strategic importance.” – Bloomberg
