Asia markets slide on growing fears of Middle East war; Singapore share index down 1.3%

HONG KONG – Asian markets tumbled on Thursday on fears that the Israel-Hamas crisis will spill over into a wider conflict in the Middle East, with some warning that a full-blown war is increasingly likely.

Japan’s Nikkei sank 1.86 per cent, while the Hang Seng Index lost 1.72 per cent and China’s blue-chip stock index CSI300 fell 1.19 per cent.

Australia’s S&P/ASX 200 index fell 1.57 per cent and South Korea’s Kospi tumbled 1.79 per cent.

Singapore’s Straits Times Index was down 1.31 per cent as at 11.03am local time.

With Israeli Prime Minister Benjamin Netanyahu building up a huge force ahead of an expected land incursion into Gaza, Iran has warned of a possible pre-emptive strike and called for an oil embargo against Tel Aviv.

United States President Joe Biden was due to make a television address on the crisis later in the day, having delivered full US backing for Israel in person on Wednesday during a solidarity visit.

However, Jordan’s King Abdullah II, Palestinian leader Mahmud Abbas and Egyptian President Abdel Fattah al-Sisi cancelled a meeting with Mr Biden after a deadly strike on a hospital in Gaza.

The tragedy ratcheted up tensions and saw Lebanon’s Iran-backed Hezbollah movement calling for a “day of rage”.

Iranian Foreign Minister Hossein Amir-Abdollahian called for an “immediate and complete embargo on the Zionist regime by Islamic countries, an oil embargo against the regime”.

He also urged Muslim countries to expel Israeli ambassadors in comments at a summit of the Organisation of Islamic Cooperation, called in Saudi Arabia to discuss the crisis.

“The window for a diplomatic off-ramp to avert a wider war in the Middle East appears to be closing,” said RBC Capital Markets analyst Helima Croft.

“A regional crisis appears the most likely outcome, especially with Israel still seemingly committed to a ground offensive to crush Hamas.”

The prospect of an all-out war pushed oil prices up on Wednesday, although Washington’s decision to suspend some sanctions on Venezuelan output tempered the gains and both contracts were slightly lower in Asian trade.

Risk aversion among traders was increased by concerns that the Federal Reserve would hike interest rates again, or at least keep them elevated for an extended period.

This pushed US 10-year Treasury yields above 4.9 per cent for the first time since 2007, fanning even more unease on trading floors, with the focus turning to Fed chairman Jerome Powell’s speech later in the day at the Economic Club of New York.

That comes after New York Fed chief John Williams said borrowing costs would need to be kept restrictive “for some time” if the bank wanted to get inflation back to its 2 per cent target.

In addition, Fed governor Christopher Waller said: “I believe we can wait, watch and see how the economy evolves before making definitive moves on the path of the policy rate... As of today, it is too soon to tell.”

Investor concerns of geopolitical risks after a widening US chip export ban have cast a shadow over Chinese stocks, despite some good news from a flurry of data on Wednesday that underscored an economy that was showing signs of stabilising.

But worries over China’s property sector have kept investors jittery.

Country Garden on Wednesday was due to pay a US$15 million (S$20.6 million) coupon payment on a bond due in September 2025, but two bond holders of China’s biggest private property developer told Reuters that they were yet to receive it. Non-payment would put the developer at risk of default.

“Such uncertainties could trigger defensive stances in Asia’s short-term risk asset demand, especially as observers keep a vigilant eye on potential ripple effects,” said Mr Anderson Alves, a trader with ActivTrades.

Spot gold was at US$1,948.16 per ounce, just shy of US$1,962.39, its highest since Aug 1 touched on Tuesday. AFP, REUTERS