Heightened tensions after Turkey shot down a Russian fighter jet near the Syrian border sent a chill through most Asian bourses yesterday.
Except for China, Jakarta and Malaysia, Asian markets followed a weak lead from Europe after one of the worst clashes between a Nato member country and Russia in nearly 50 years occurred just weeks after the Paris attacks.
Singapore's Straits Times Index was the worst performer in the region, shedding 1.09 per cent. Hong Kong slipped 0.4 per cent, Tokyo fell 0.39 per cent, South Korea dipped 0.34 per cent and Thailand was down 0.25 per cent.
While uncertainty over a possible escalation of the dispute between Russia and Turkey weighed on most Asian markets, analysts say the situation is unlikely to provoke a military response as Russia's economy is just recovering after two years of sanctions.
"Given the importance of trade between the two sides, the incident is unlikely to escalate into a 'hot' conflict, which suggests that a diplomatic solution is probably the most likely course," IG market strategist Bernard Aw said. Moscow is a major buyer of Turkish farm products and other goods, while Turkey is Russia's second-biggest energy customer.
Commodity currencies, in particular, the ringgit, fared well, owing to recent higher oil prices.
News of 1Malaysia Development Berhad's US$2.3 billion (S$3.3 billion) sale of its power assets to China General Nuclear Power Corp and China's commitment to buy Malaysian bonds also lifted the ringgit. 1MDB is in the process of winding down amid criticism from lawmakers over rising debt. The ringgit recovered from 3.0040 to 2.9974 yesterday against the Singdollar, and from 4.2490 to 4.2135 against the greenback.
"Improved investor sentiment towards Malaysian assets could see further near-term gains for the ringgit, though the rally will be checked by the need for Bank Negara to start replenishing its FX reserves," ANZ senior currency strategist Khoon Goh said.
Brent had settled up US$1.29 at US$46.12 on Tuesday on escalating Middle East tensions, having hit its highest since Nov 11 at US$46.50. But it was down to US$45.56 yesterday.
US West Texas Intermediate fell to US$42.26 a barrel yesterday, having gained US$1.12 to US$42.87 on Tuesday. Data showed that US crude stocks rose by 2.6 million barrels in the week to Nov 20, more than double analysts' expectations for an increase of 1.2 million barrels.
