After the storm: Asian stocks rebound following massive selloff

Kuala Lumpur, Malaysia – Most Asian stocks clawed back some of their recent losses on Tuesday, a day after an oil price war and coronavirus fears slammed financial markets globally, sending shares from Japan to the United States plunging as governments struggle to contain the widening outbreak.

The Japanese benchmark Nikkei 225 index rose 0.85 percent, after dropping to a 14-month low on Monday. The broader Topix index gained 1.3 percent. The government unveiled a $4bn package of measures to deal with the economic effects of the coronavirus.

In mainland China, the benchmark Shanghai Composite Index jumped 1.82 percent. 

Hong Kong’s Hang Seng Index rose 1.41 percent following a nearly 4 percent plunge a day earlier. Singapore’s Straits Times Index climbed 1.4 percent, and Thailand’s main stock index was 1.24 percent higher.

On Monday, panic selling caused the US Dow Jones Industrial Average to tank more than 2,000 points, or 7.8 percent, to stage its worst one-day performance since the global financial crisis more than 10 years ago, while the S&P 500 index fell 7.6 percent.

Investors who were already jittery due to the widening coronavirus outbreak, as cases outside China started to multiply rapidly, were hit by the knockout punch of rapidly falling energy prices.

The crash in crude oil markets was sparked by a price war launched by Saudi Arabia after the collapse of OPEC+ alliance talks with Russia over the weekend.

The breakdown in talks sent the Brent crude global benchmark down more than 30 percent at one point on Monday – the biggest drop since the 1991 Gulf War. Oil prices rebounded on Tuesday, with Brent crude futures rising $2.51, or 7.3 percent to $36.87 a barrel by 04:18 GMT.

Some investors said they see opportunities to buy Asian stocks that had made huge gains over the course of 2019, and which plunged on Monday.

“Stock prices coming down is a time for us to cherry-pick,” Danny Wong Teck Ming, chief executive officer of fund management firm Areca Capital, told Al Jazeera.

“Yes, it’s a perfect storm when you have two events dragging down share prices, but this is not as serious as the subprime crisis (of 2008-09) or the (1998) Asian financial crisis where the impact will last for years,” Wong said.

But others say the plunge in oil prices will hurt regional economies.

“It is hard to see how this sort of shock could have come at a worse time for Asia,” Robert Carnell, ING chief economist and head of research for Asia Pacific, said in a note shared with Al Jazeera.

“Even India, where we would normally expect an oil price decline to provide some support to the rupee, is unlikely to see much benefit, as it is embroiled in its own financial sector problems, with the collapse of a private bank at the end of last week,” he noted. The Malaysian ringgit currency stands to lose too since the country is the region’s most notable oil exporter, Carnell wrote.

More winners

Malaysia aside, there are more winners than losers in Asia in a lower oil price environment, analysts say.

Most Asian countries are net crude importers and will benefit from falling prices, including the Philippines, Thailand, China and Singapore, said Wellian Wiranto, OCBC Bank economist in Singapore.

“But it adds to the risk sentiments and it complicates things. Every time something like this happens, you’d expect the authorities to act, central banks to cut rates,” Wellian told Al Jazeera. “As though the coronavirus is not enough, we are now hit with oil price as well.”

Investors say the silver lining to the crash in oil prices is that it may prove to be temporary.

“Once the oil producers feel the pain of the plunging prices, they will come to their senses,” and negotiate, Ang Kok Heng, chief investment officer at Phillip Capital Management in Kuala Lumpur, told Al Jazeera.

Some sectors may gain from lower crude prices, including power plants and plastic manufacturers, Ang said.

While the pain inflicted by crashing oil prices may be temporary, the coronavirus outbreak will have a longer-lasting impact on the real economy, Ang said.

The hardest-hit sectors such as the hotel and tourism industries will be forced to make pay cuts, lay off staff or enforce leave and it may take another two to three months before the outbreak outside China is contained, he said.

Widespread effects

In China, where the outbreak started, factories and businesses are gradually returning to normal.

But events outside Asia could end up hurting the region anew, as the effects of the virus whipsaw around the world.

Government-imposed travel bans and cancelled holidays around the world due to the epidemic will cost Asian economies as much as $115bn this year through lost tourism receipts alone, according to ING’s estimate.

Among Asian countries, Cambodia and the Philippines could be among the most vulnerable to a slump in tourism as these have the highest percentage of exports and employment tied to the sector, data compiled by ING for its February 24 report show. 

Many Asian economies are already showing signs of a drastic slowdown.

China’s services sector had its worst month on record in February, according to the latest Caixin/Markit services purchasing managers’ index, while factory activity slowed to its lowest level since the research group began its surveys in 2004.

That in turn has raised fears that Japan, which counts China as one of its largest trading partners, has already entered a recession, defined as two consecutive quarters of economic shrinkage.

The virus has disrupted both the supply and demand sides of the region’s economies. In China, for instance, draconian measures to curb travel and public gatherings have led to major disruptions in the manufacture of everything from T-shirts to advanced consumer electronics.

Those same measures have also hurt demand as consumers have been forced to stay at home.

Meanwhile, some analysts are starting to assess the prospects of an economic recovery in Asia once the COVID-19 outbreak subsides. The numbers of new cases in China have fallen sharply in recent days.

Areca’s Wong said he sees financial markets rebounding sharply once the epidemic has run its course in three to six months.

In Asia, governments and central banks have options to deploy monetary policy – including interest rate cuts – or use fiscal measures such as tax cuts to cushion the impact of an economic downturn, Wong said.