Asian stocks reach near 1-year lows; oil rally inspires inflation worries

Wall Street saw a broad sell-off of Asian shares seen to weaken for the third session on Tuesday in the midst of worries that oil prices will climb to multi-year highs, effectively adding to inflationary pressures owed to supply chain disruptions.

S&P 500 e-minis rose by 0.01%, the pan-region Euro Stoxx 50 futures had gained 0.2, while the FTSE futures went up by 0.4%.

A 1.3% drop had been recorded for Asia-Pacific shares outside Japan according to the MSCI’s broadest index. Japanese stocks plummeted by 2.5%, South Korea by 2%, and Australia lost 4%.

Vasu Menon, Executive Director to OCBC Bank’s investment strategy had this to say about the manifesting apprehensions:

“Investors are clearly worried about inflation due to supply chain disruptions and the rally in energy prices,”

MSCI’s main benchmark had been brought to 619.77, recorded to be the lowest since November 2020. It pared losses by 0.6% in the late Asia trade. This year had seen a loss of more than 5%, with the markets in Hong Kong and Japan being among that suffered the biggest losses.

Menon went on further to add:

“We have seen tech stocks outperform value stocks, so if inflation remains a worry, then tech stocks tend to get hit,”

On Monday, oil prices reached a three-year peak post-OPEC+’s confirmation that it would stand by its most recent output policy. U.S. Oil stood at $77.68 per barrel, a day after it reached its highest since 2014. Meanwhile Brent Crude remained at $81.5 after its rise to the top in three consecutive years.

Regarding the potential surge of oil prices, Commodities Analyst Vivek Dhar of the Commonwealth Bank of Australia was quoted saying:

“OPEC+ may inadvertently cause oil prices to surge even higher, adding to an energy crisis that primarily reflects very tight gas and coal markets,”

He then adds,

“That potentially threatens the global economic recovery, just as global oil demand growth is picking up as economies re‑open on the back of rising vaccination rates,”