Stock markets dive, safe havens eyed

Equity markets collapsed Monday as the rapidly spreading novel coronavirus (COVID-19) fans fears for the global economy, while a crash in oil prices added to the panic with energy firms taking a hammering and wiping hundreds of billions off valuations.

As the deadly disease claims more lives around the world, dealers are shedding riskier assets for safe havens, sending gold and the yen surging and pushing US Treasury yields to record lows.

While governments and central banks have unleashed or prepared stimulus measures, the spread of COVID-19 is putting a huge strain on economies and stoking concerns of a worldwide recession.

Trading floors were a sea of red, with Tokyo plunging more than 5 percent, while Hong Kong dived 4.2 percent. Sydney shed 7.3 percent.

Bangkok crashed more than 8 percent, Singapore and Jakarta were more than 5 percent down. Manila and Mumbai lost more than 6 percent, while Shanghai, Taipei, and Wellington were around 3 percent down.

London and Frankfurt plunged more than 8 percent at the open, while Paris retreated 4.2 percent.

The losses followed sharp falls in Europe and Wall Street on Friday.

Driving the declines was a ferocious sell-off in the oil markets, sparked by top exporter Saudi Arabia slashing prices—in some cases to unprecedented levels—after a bust-up with Russia overproduction.

Both main oil contracts—which had already been under pressure over falling demand caused by the virus—dived around 30 percent, marking the worst drop since the 1991 Gulf War and the second biggest fall on record, according to Bloomberg News.

Saudi equities tanked more than 9 percent with oil titan Aramco losing 10 percent. Dubai and Kuwait sank a similar amount, while Abu Dhabi equities were almost 8 percent down.

Saudi Arabia launched an all-out oil war Sunday with the biggest cut in its prices in the past 20 years, Bloomberg News reported, after OPEC and its allies failed to clinch a deal to reduce output.

A meeting of main producers was expected to agree to deeper cuts to counter the impact of the coronavirus—but Moscow refused to tighten supply.

In response, Riyadh slashed its price for April delivery by $4-$6 a barrel to Asia and $7 to the United States.

Russia’s decision not to comply had already battered prices and there are warnings they could continue to drive lower towards $20 if the two sides do not reach an agreement. Jenniffer B. Austria with AFP

“Something like this could have more global repercussions than a trade war between China and the US because oil touches so many things in the world economy,” said Rohitesh Dhawan, director of energy, climate and resources at Eurasia Group in London.  

Jeffrey Halley, senior market analyst at OANDA, said: “Saudi Arabia seems intent on punishing Russia.

“Oil prices… will likely be capped over the next few months as coronavirus stalls economic growth, and Saudi Arabia opens the pumps and offers huge discounts on its crude grades.”

Energy firms were slammed, with Hong Kong-listed CNOOC tumbling 17 percent and PetroChina down more than 9 percent, while in Tokyo, Inpex dived 13 percent. In Sydney, Santos dived 27 percent and Woodside Petroleum tanked 18.4 percent, while BHP was more than 14 percent down.

“Plummeting oil prices and spreading coronavirus are fanning fears of downside risks to the global economy,” said Takuya Kanda, at Gaitame.com Research Institute.

Foreign exchange markets were also extremely volatile, with traders snapping up the yen—seen as a hedge against global instability—and selling off the dollar owing to uncertainty over the coronavirus in the United States.

Marito Ueda, senior trader at FX Prime, told AFP: “Fears over the virus’s impact on the global economy and a plummet in US yields had investors seeking the safe-haven yen.”

“It is essentially a flight from the dollar,” he added.

The greenback fell below 103 yen, levels not seen since the third quarter of 2016.

Currencies of countries that rely on oil cash were among the worst hit, with Russia’s ruble almost 6 percent lower, Australia’s dollar diving 5 percent at one point and Mexico’s peso also down 5 percent.

Analysts warned of further gyrations as the outbreak shows no sign of abating, with more than 110,000 people infected in scores of countries.

Italy, which is now the hardest-hit country outside China, has put a quarter of its population in lockdown, while sporting and public events around the world have been cancelled.

“You just don’t know which way things are going to go, it makes it very hard to price anything right now,” said Sarah Hunter, chief economist for BIS Oxford Economics, on Bloomberg TV.

“We’re seeing that in the market with the wild oscillations that are coming through.”

In Manila, the local benchmark plummeted by whopping 457.77 points to slump at 6,312.61, officially marking the entry of the market into bear territory on worries over the impact of the deadly COVID-19 outbreak as well as impending oil price war.

The market’s close of 6,31261 is the lowest in more than four years while year-to-date figure showed that index is already down 19.35 percent.

Analysts said THE market was in free fall due to heavy selling pressure as the Department of Health has confirmed new cases of COVID-19 in the country.

While the government has assured the public that it prepared to handle COVID-19 cases in the country, investors still opted to sell their stocks to rather than hold on to their shares.

“All indicators are deep into oversold regions, with no signs of slowing down. At this point, the nearest strong support for the index was established way back in January 2016 – at 6,259.25,” Regina Capital said.

“Participants are left with little to do now that the market continues to be in free-fall. Sell,” it added.

The PSEi has fallen 25 percent since its recent high in July, based on Bloomberg data. A market gauge needs to drop 20 percent from a peak over a sustained period of tine for it to be considered in a bear territory.

First Metro Investments Corp. said the unchecked spread of COVID-19 has dimmed global growth outlook and investor sentiments shifting toward safe assets and havens.

“We foresee that the outbreak will negatively impact the local equity market in first half of the year.. Faster economic growth and better reported earnings for second quarter should provide returns in second half of the year,” First Metro said.

Meanwhile, the oil price war between Saudi Arabia and Russia is also adding concerns to the already feeble market conditions.

Oil markets suffered a historic collapse after Saudi Arabia triggered a price war against onetime ally Russia.

All sectors registered steep declines, led by financials (-8.56 percent), services (-6.7 percent), industrial (-6.36 percent), holding firms (-6.2 percent), mining and oil (-6.07 percent and property (-5.91 percent).

Foreign investors were net sellers on Monday by P839.3 million. Value turnover stood at P6.31 billion.

Decliners outnumbered gainers, 204 to 30 while 23 stocks were unchanged. With AFP