Asia report: Stocks fall amid China unrest, oil price drop

Stocks in Hong Kong led a negative day in Asia on Monday, as civil unrest in mainland China over Beijing’s controversial zero-Covid policy undermined sentiment.

In Japan, the Nikkei 225 was down 0.42% at 28,162.83, as the yen strengthened 1.11% against the dollar to last trade at JPY 137.65.

Fashion firm Fast Retailing was up 0.23%, while automation specialist Fanuc was down 0.17% and technology conglomerate SoftBank Group slipped 0.61%.

The broader Topix index was 0.68% weaker by the end of trading in Tokyo, settling at 2,004.31.

On the mainland, the Shanghai Composite lost 0.75% to 3,078.55, and the technology-heavy Shenzhen Component was off 0.69% to 10,829.08.

China’s central bank announced a 25-basis point cut to its reserve ratio requirement over the weekend, taking it to 7.8%.

The People’s Bank of China said the move would see about CNY 500bn of long-term liquidity injected into the country’s economy.

Fresh data out of Beijing meanwhile showed a 3% year-on-year fall in industrial profits in the first 10 months of 2022.

“Profit performance deteriorated notably in private companies, state-owned enterprises and shareholding companies in October relative to September,” said Duncan Wrigley at Pantheon Macroeconomics.

“The only group with continued profit growth y/y was foreign-invested companies.

“Note, however, that this is the reverse of the situation for most of the year, during which foreign-invested companies suffered significant profit drops.”

Wrigley said China’s shifting policy towards Covid - seeking to curb the pandemic with less economic disruption - was running into problems, with a surge in new cases and the ongoing protests.

“Nonetheless, we think meaningful progress is likely during 2023, laying the foundation for domestic demand recovery and stronger manufacturing profits performance.”

South Korea’s Kospi slid 1.21% to 2,408.27, while the Hang Seng Index in Hong Kong tumbled 1.57% to 17,297.94.

The blue-chip technology stocks were on the back foot in Seoul, with Samsung Electronics down 1.48% and SK Hynix 2.35% weaker.

Oil prices were in the red at the end of the Asian day, with Brent crude futures last down 2.88% on ICE at $81.22 per barrel, and West Texas Intermediate 2.77% lower on NYMEX at $74.17.

Prices for the thick black stuff were on the back foot amid unrest in China, where citizens took to the streets over the weekend in protest of an ongoing threat of lockdown as a result of its ‘zero-Covid’ policy.

China is the world’s second-largest oil consumer, and has maintained its policy of rapidly locking down areas where cases of the coronavirus crop up, long after much of the rest of the world has opened up.

“Uncertainty around the Chinese reopening sent the barrel of US crude below the $75-$76 support, and the next natural target for the oil bears stands at the $70 psychological support,” said Swissquote senior analyst Ipek Ozkardeskaya.

“One factor that could slow down bleeding in oil is the upcoming OPEC meeting, scheduled for 4 December.”

Ozkardeskaya said OPEC could use the China excuse to further restrict outlook, and hope to throw a floor under the crude selloff.

“But the bears have the upper hand right now, and any price rallies should bump into solid resistance within the $77-$80 range.”

In Australia, the S&P/ASX 200 was down 0.42% to 7,229.10, while across the Tasman Sea, New Zealand’s S&P/NZX 50 weakened 0.65% to 11,308.31.

The down under dollars were both weaker against the greenback, with the Aussie last off 0.59% at AUD 1.4901, and the Kiwi retreating 0.19% to NZD 1.6039.

Reporting by Josh White for Sharecast.com.