Investors in Asia are dumping technology stocks as they brace for an inflation shock from the surging oil prices that would delay interest rate cuts or even lead to increased rates.
The Seoul market in South Korea saw on Wednesday its biggest-ever crash with selloffs focused on chip makers and technology stocks. Traders are concerned that the escalating war in the Middle East and the surge in oil and gas prices would reignite inflation and slow economic growth rates.
The key Kospi Index on the Seoul stock market plummeted by 12% on Wednesday, the biggest one-day slump on record, following a 7% decline on Tuesday, as Asia braces for an energy shock.
In Japan, the Nikkei index plunged by nearly 4% and the TOPIX index was also down by a similar percentage.
Related: How China’s Rare Earth Ban Backfired into a U.S. Tech Breakthrough
“Asia’s selloff is turning disorderly because markets are no longer treating this as a ‘one-week headline shock,” Charu Chanana, chief investment strategist at Saxo in Singapore, told Reuters.
“The ‘sell-what-you-can’ phase is spreading.”
Asia is particularly vulnerable to the current energy shock as most of its top oil and gas buyers, including China, Japan, South Korea, and India, rely on Middle Eastern crude and LNG being transported via the Strait of Hormuz.
With the narrow but vital shipping lane between Iran and Oman now effectively closed to traffic, energy prices have soared this week. Market participants are starting to price in the potential of weeks-long disruption and further surges in oil and LNG prices, which would inevitably translate into higher inflation numbers and potentially higher-for-longer interest rates.
“Export-heavy and rate-sensitive sectors took the hit as investors priced higher inflation risk and a slower path to rate cuts,” analysts at Saxo Bank said in a Wednesday note, commenting on the Asian market rout.
Meanwhile, oil prices were up by 3% in Asian trade, with Brent Crude nearing $84 and WTI Crude trading at above $76 a barrel.
By Tsvetana Paraskova for Oilprice.com
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