Asia stocks tumble in global sell-off on inflation fears; STI down 0.8%

Japan's Nikkei 225 dropped 3.39 per cent.
Japan's Nikkei 225 dropped 3.39 per cent.PHOTO: EPA-EFE

HONG KONG (AFP) - Asian markets tumbled on Tuesday (Oct 5), extending a global rout that saw Wall Street slump, as soaring oil prices put further upward pressure on inflation while a standoff in Washington over raising the country’s borrowing limit fuelled fears of a catastrophic US debt default.

Investors were nervously monitoring developments in the crisis surrounding troubled property giant China Evergrande, which has raised warnings about contagion in the world’s number two economy and possibly beyond.

A decision on Monday by Opec and other major producers not to increase their output by more than previously agreed - despite tightening supplies and rising demand - sent crude prices rocketing, with WTI hitting a seven-year high and Brent a three-year peak. Both main contracts rose on Tuesday.

The announcement fanned expectations that inflation, already sitting at multi-year highs, will spike further, putting pressure on central banks to taper their ultra-loose monetary policies sooner than flagged with interest rates to then rise.
And some analysts are warning of a period of stagflation, in which prices surge while economic growth stalls.

Crude markets have come under pressure as the global economy emerges from the pandemic, pushing up demand for travel, among other things, while the approaching northern hemisphere winter has seen gas prices jump, which has in turn led companies to switch to oil.

All three main indexes on Wall Street ended deep in the red, led by the Nasdaq, as tech firms took a beating owing to their susceptibility to higher interest rates.

And the losses continued in Asia, with Tokyo briefly losing as much as 3.5 per cent before edging back slightly. The Nikkei index was down 2.8 per cent at midday break.

Seoul shed more than 2 per cent, while Sydney was down0.5 per cent. 

Stocks in Hong Kong were up 0.3 per cent, while markets in mainland China are shut until Friday for the Golden Week holidays. 

Singapore’s Straits Times Index was down 0.77 per cent at the midday break, paring earlier losses.

The crisis in China’s property sector remained on investors’ minds, with news that developer Fantasia Holdings was in trouble after failing to make a payment to bondholders adding to concerns about the broader impact from the woes at indebted Evergrande.

With the real estate colossus teetering, there are concerns that its collapse would reverberate through the world’s number two economy, with the property industry a major driver of growth.

There was no word from Evergrande on Tuesday, a day after it suspended trading in its Hong Kong shares pending an announcement on a “major transaction”.

The halt came as reports said Hong Kong real estate firm Hopson Development Holdings planned to buy a 51 per cent stake in Evergrande’s property services arm for more than HK$40 billion (S$6.98 billion).

Meanwhile, Fantasia’s US dollar-denominated bonds lost nearly half their market value in a massive Monday selloff, after it said it had failed to make a US$206 million international market debt payment on time.

An index of China high-yield debt, which is dominated by developer issuers, hit its lowest since the pandemic drawdown in 2020 on Monday, and has lost almost 20 per cent since May - while comparable US and European indexes have rallied. 

Investors are also growing increasingly nervous about US lawmakers bickering over lifting the debt ceiling with around two weeks of cash left, leaving the country on the brink of a historic debt default that several experts including Treasury Secretary Janet Yellen warned would cause a financial crisis.

With Republicans refusing to agree to more borrowing, calling Democrats spendthrift, President Joe Biden on Monday called his opponents “reckless and dangerous”.

Democratic infighting also continues to hold up progress on his multi-trillion-dollar infrastructure and social care bills.