March 4 (Reuters) – Asian stocks dropped sharply on Wednesday, with investors 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%. Seoul’s benchmark KOSPI shed more than 11% to trigger a circuit breaker, while Japan’s Nikkei and Taiwan’s index dropped more than 4% each.
Here are comments from analysts:
COMMENTS:
CHARU CHANANA, CHIEF INVESTMENT STRATEGIST, SAXO, SINGAPORE:
“Asia’s selloff is turning disorderly because markets are no longer treating this as a ‘one-week headline shock’. The pricing now reflects a conflict that could drag on, with spillover risk rising rather than fading.
“The inflation channel is biting harder. The market isn’t just repricing geopolitics; it’s repricing energy logistics, security premia, and longer-lasting inflation pressure, which is a tougher backdrop for risk assets than a simple growth scare.
“Policy offsets look less credible in real time and talk of ‘escorting ships’ or easing energy costs doesn’t solve the core issue if Hormuz transit is contested and energy infrastructure is increasingly in the line of fire – that keeps the risk premium sticky.
“The ‘sell what you can’ phase is spreading: liquidity needs are pulling down even precious metals, which looks less like a clean rotation and more like de-leveraging and margin-driven selling across asset classes.
KENNETH GOH, DIRECTOR OF PRIVATE WEALTH MANAGEMENT, UOB KAY HIAN, SINGAPORE:
“The uncertainty is what’s driving this. Investors feel there is no clear end game, and more importantly, no visible plan for one. That is what is unsettling markets more than the tariffs themselves.
“This is very different from the global financial crisis, where investors were rushing for the exits and wanted to hold as much cash as possible at any cost. What we’re seeing now is more measured, a deliberate asset allocation shift towards cash and safe haven assets, not panic liquidation.
“Within that rotation, some market participants are also positioning in gold and looking at commodities as a hedge.”
TONY SYCAMORE, MARKET ANALYST, IG, SYDNEY:
“We’re just seeing de-risking of portfolios … we now sort of feel like the path in the Middle East has taken, I think, a more uncertain direction … it’s all starting to look like now is a good time to be putting money safely on the sidelines.
“At the start of the week there was, I think, an overwhelming sense that it was going to be a very short conflict.
“The more pessimistic version, which seems to be resonating more strongly now is that, ‘Hey, this is starting to look a little bit like the Russian invasion of Ukraine, and potentially it could go on for many weeks, many months, maybe even a number of years.'”
FRANCIS TAN, CHIEF ASIA STRATEGIST, INDOSUEZ WEALTH MANAGEMENT, SINGAPORE:
“The market is now adjusting to what if (the conflict) is going to be a bit longer. Those indexes that are pretty high-beta … will certainly see a larger beta shock than everyone else.
“(Clients have been asking about) the impact on China. People have been asking, because China is a net oil importer, how all these things will be impacting, translating towards the overall economic growth.”
HIROYUKI UENO, CHIEF STRATEGIST AT SUMITOMO MITSUI TRUST ASSET MANAGEMENT, TOKYO:
“Today’s decline wiped out the Nikkei’s gain since Prime Minister Sanae Takaichi made a landslide win at the national election in early February.
“Investors who bought Japanese stocks after the election probably dumped the shares in the latest selloffs.
“The next target for the Nikkei’s low is 52,000, a level in late January when Takaichi announced the snap election. I see the 52,000 as a defence line of the Nikkei. The index may keep slipping once it falls below that level.”
CHRISTOPHER FORBES, HEAD OF ASIA AND MIDDLE EAST, CMC MARKETS:
“The KOSPI’s 15% two-day collapse is a textbook momentum unwind, not a structural break …. when U.S.-Israeli operations practically closed the Strait of Hormuz, there were no diversified bids to absorb the selling.
“The order book evaporated. Foreign investors pulled over $7 billion in two sessions. The biggest upside catalyst is the record hedge fund short book. According to Goldman’s prime brokerage, shorts outpaced longs two-to-one in early February.
“If tensions ease quickly, a violent squeeze could follow. Samsung and SK Hynix remain healthy businesses.”
RUPAL AGARWAL, ASIA QUANT STRATEGIST, BERNSTEIN, SINGAPORE:
“The impact on Asian markets has been higher because Asian economies are more vulnerable to the Strait of Hormuz closure and because in the run-up to the war, momentum trends were very sharp in many parts of Asia such as Korea.
“For markets to find a floor, we need signs of de-escalation on the war front or status quo which could then move the focus back to fundamentals.”
RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE:
“Amongst the ASEAN-6 countries, the net oil trade balance is most adverse in Thailand, Malaysia, and Vietnam (as % of GDP), with the pass-through to price pressures most material in Thailand and the Philippines.
“Additionally, while less strategic, Thailand and Singapore are top LNG buyers in the region, but with a well-distributed supplier mix, especially in Singapore.
“Much of the region will likely monitor developments in the Middle East with trepidation … Regional central banks are unlikely to act pre-emptively on policy, preferring to remain on hold.”
(Reporting by Rae Wee, Tom Westbrook and Gregor Stuart Hunter in Singapore, Satioshi Sugiyama in Tokyo, Roushni Nair in Bengaluru; Editing by Sumeet Chatterjee and Kate Mayberry)
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