Asian markets in full retreat after warning oil market could 'drown in oversupply', STI down 2.7%

A pedestrian walking past an electronic board showing the stock market indices of various countries in Tokyo, Japan.
A pedestrian walking past an electronic board showing the stock market indices of various countries in Tokyo, Japan.PHOTO: REUTERS

SYDNEY (REUTERS, BLOOMBERG) - Asian share markets were in full retreat on Wednesday (Jan 20) as a relentless slide in oil prices soured an attempted rally on Wall Street and dealt a further blow to global investors' appetite for riskier assets.

Japanese stocks plunged into a bear market as investor concerns over the global economic outlook outweighed technical signs that a China-fueled rout has gone too far. The Topix index sank 3.7 per cent, taking its loss since a high on Aug 10 to 21 per cent. The Nikkei 225 Stock Average fell 3.7 per cent, down 21 per cent from its recent peak on June 24.

Japan's Nikkei closed down 3.7 per cent, leaving it 20 per cent below last year's peak, meeting the technical definition of a bear market. The pain was felt widely with Australian stocks down 1.3 per cent and South Korea off 2.3 per cent.

The Straits Times Index tumbled 2.72 per cent to 2,566.73 as of 2:24 pm.

The Shanghai Composite Index lost 1.6 per cent amid mounting talk that more stimulus may be on the way, possibly before the Lunar New Year holidays in early February.

Chinese stocks trading in Hong Kong tumbled to the lowest levels in four years as oil producers slumped and a slide in the city's dollar spurred concerns over capital outflows.

The Hang Seng China Enterprises Index plunged 4.9 per cent at the noon break. PetroChina fell to a 11-year low as oil extended its decline and Cnooc, China's largest offshore oil company, said it will cut output for the first time in more than a decade.

US crude wallowed at its lowest since 2003 after the world's energy watchdog warned the market could "drown in oversupply". US crude futures shed 53 cents to US$27.93, while Brent crude lost 24 cents to US$28.52 a barrel.

Equity markets reacted by surrendering all of Tuesday's rare gains. The MSCI Asia Pacific Index lost 2.6 per cent at 12:26 pm in Hong Kong, heading for the lowest close since September 2012. US index futures tumbled as the selloff in global equities internsified in Asia. March e-mini contracts on the Standard & Poor's 500 Index dropped 1.4 per cent as of 1 pm in Tokyo.

Hong Kong's dollar traded near its weakest level since 2007 as concern about China's slowing economy curbs demand for the city's assets.

The so-called H-shares gauge has slumped 18 per cent this year, outpacing China's Shanghai Composite by one percentage point to make it the world's worst-performing major global benchmark measure out of the 93 tracked by Bloomberg.

Similar to its mainland counterparts, Hong Kong policy makers are fighting to prevent a vicious cycle of capital outflows and a weakening currency with the resulting financial-market volatility heightening concern that China's deepest economic slowdown since 1990 will worsen.

PetroChina and China Petroleum & Chemical Corp tumbled at least 6.4 per cent in Hong Kong. Oil extended its decline from the lowest close in more than 12 years, while Cnooc's output cut increased speculation the nation's producers are succumbing to the global price war. Cnooc's acknowledgment that spending cuts are hurting production may be a prelude to further reductions by Chinese explorers, according to Nomura Holdings. The stock dropped 6 per cent.

Hong Kong's Hang Seng Index tumbled 3.8 per cent to a three- year low as trading volumes surged 69 per cent above the 30-day average for this time of day. Property developers led declines, with Cheung Kong Property Holdings sliding 5.8 per cent to a record low.

Overnight Wall Street had seen its early gains erased by the slump in US crude. The Dow ended Tuesday up 0.17 per cent, while the S&P 500 rose a single point and the Nasdaq eased 0.26 percent.

The S&P energy sector alone dived 2.17 per cent. Oil at 12-year lows stokes fears of deeper losses for energy companies and the risk some may fail to pay their debts.

Tom Porcelli, chief US economist at RBC Capital Markets, noted that polls of investors showed investors were more bearish on Wall Street than at any time since mid-1987.

"Perhaps characterizing the recent bout of negativity as being 'pervasive' is an understatement," he wrote in a note.

Yet history showed that sentiment was darkest before the dawn. "When investor pessimism reached these levels outside of an economic recession, the market was higher one quarter hence in every single instance, and up by an average of 6.4 per cent."

With risk out of favour, sovereign bonds were in demand. Yields on US 10-year Treasuries declined to 2.03 per cent and were down a massive 24 basis points since the new year began.

Other safe havens included the Japanese yen, which rose across the board. The US dollar was dragged back to 117.14 yen from a top of 118.11 on Tuesday, while sterling hit its lowest since early 2014.

The pound had already been under fire after Bank of England Governor Mark Carney said he had no "set timetable" for raising rates, sending it to a seven-year low of $1.4127.

Against a basket of currencies, the US dollar was down just a touch at 98.919, while the euro edged up to US$1.0938.