Oil slide hits stocks, MSCI China impact is muted

Sydney - Asian shares retreated and the yen strengthened as crude oil tumbled into a bear market on concern a global supply glut will persist.

Shanghai equities were muted after MSCI added China’s domestic stocks to its emerging-markets index.

Australia’s benchmark stocks index led losses in the region, with the country’s energy shares falling more than 2%. The yen strengthened on haven demand as oil slid more than 20% from its high for the year.

The Shanghai Composite Index swung between gains and losses after the MSCI’s decision, while Hong Kong shares retreated. Gold rose after a five-day selloff.

"The weight from the crude slide is expected to find investors taking some off the table for Asian markets and shifting toward safer assets," said Jingyi Pan, a Singapore-based market strategist for IG Asia.

As for the MSCI’s move,"in the near-term the inclusion could really be seen as symbolic at best, with the implementation due only in 12 months."

The MSCI decision will add 222 China A-share stocks starting in May 2018. The nation’s $6.8trn onshore market is the world’s second largest and accounts for 9% of global stock value, but had been rejected for index inclusion three times by MSCI over issues including capital controls and long trading halts.

The index provider delayed its decision on the status of Argentina’s equities, dealing a blow to investors as bearish bets on the Merval benchmark index jumped to a high and Argentine shares in the US plunged.

MSCI also will consult on the possible inclusion of Saudi Arabia in the index.

The swoon in oil dragged down energy shares amid concern that unceasing production from US shale fields is overwhelming Opec efforts to ease a global supply glut. Libya, exempt from the Opec-led output cuts, is pumping the most in four years while oil stored on tankers reached a 2017 high this month.

The weakness in crude and other commodities dents arguments from American central bankers that weak inflation rates will be transitory, even as the economy shows few signs of distress.

Stocks had barrelled to fresh highs after a series of geopolitical concerns seems to have faded, though formal negotiations over Britain’s exit from the European Union began somewhat contentiously.

Investors are watching developments in Saudi Arabia, after Deputy Crown Prince Mohammed Bin Salman replaced his uncle as crown prince, a shock announcement that puts the 31-year-old leader next in line to the throne of the world’s biggest oil exporter.

Here are some of the key events on investors’ radar:

Still to come on the Fed speaker list: Eric Rosengren, Robert Kaplan, Jerome Powell, James Bullard and Loretta Mester. BOJ Governor Haruhiko Kuroda will speak in Tokyo and ECB board member Benoit Coeure speaks in Frankfurt on Wednesday.

New Zealand’s central bank is expected to leave its benchmark interest rate at a record low when it meets on Thursday.

Here are the main moves in markets:

Stocks

The Shanghai Composite was little changed as of 2:11 in Tokyo, after falling as much as 0.2% and rising as much as 0.5%. Hong Kong’s Hang Seng and the Hang Seng China Enterprises Index each fell 0.4%.

Australia’s S&P/ASX 200 Index slumped 1.3%, almost erasing its gains for the year, with BHP Billiton and Rio Tinto sliding at least 2.7%. Japan’s Topix fell 0.2%, after climbing for three days to the highest level since August 2015. South Korea’s Kospi dropped 0.5%.

The MSCI Emerging Markets Index slid 0.4% ADRs for YPF, Argentina’s state-run oil producer, slumped 10% in after-hours US trading amid disappointment over MSCI’s decision. Grupo Financiero Galicia lost 5.8%

Contracts on the S&P 500 dropped 0.1%. The gauge’s retreat on Tuesday was led by energy stocks and consumer discretionary producers, which slumped 1.3%. The Stoxx Europe 600 erased a gain to end 0.7% lower.

Commodities

West Texas oil declined less than 0.1% to $43.49. Futures tumbled more than 2% on Tuesday, touching the lowest since August. Gold rebounded 0.3% to $1 246.83 an ounce, after falling for five straight days.

Currencies

The yen rose 0.2% to 111.27 per dollar, after gaining 0.1% on Tuesday. It had retreated 0.6% the previous session. The Australian dollar lost 0.3%, dropping for a third day.

The Korean won dropped 0.7% to the weakest level since April. The Bloomberg Dollar Spot Index was flat after rising 0.3% on Tuesday and 0.4% the previous day. The measure touched the lowest level since October last week.
 
The British pound was little changed at $1.2631, after Tuesday’s 0.8% drop. Bank of England Governor Mark Carney said he is still worried about the impact of Brexit on the economy.

Bonds

The yield on 10-year Treasuries was little changed at 2.16%, after falling three basis points on Tuesday. Australian 10-year yields declined two basis points to 2.40%.