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Asia stocks fall on fears over Iraq

Publication Date : 18-06-2014


Fears that the Iraq conflict will disrupt oil supplies sent share markets down across Asia yesterday.

Investors are becoming increasingly aware that the regional conflict poses a real danger to the global recovery, especially if it sends crude oil prices up.

The concerns sent Hong Kong shares down 0.4 per cent yesterday, while Shanghai fell 0.9 per cent and Singapore's Straits Times Index lost 0.5 per cent.

Tokyo was a rare survivor, ending the session up 0.3 per cent.

The central fear is that the militants who have overrun a large part of northern Iraq may take over a large oil refinery.

Iraq produces more than 3 per cent of the world's crude oil. Many fear instability will drive up prices and hurt the global recovery.

Crude prices jumped 4 per cent last week, although they have been flat this week at around US$106.90 a barrel, just a touch below last Friday's level of US$106.91 - the highest since September last year.

If the crisis spreads to the rest of Iraq, there may be more price spikes, warned  Avtar Sandu, senior commodities manager of Phillip Futures.

Said Barclays economist Leong Wai Ho: "The concern of potential oil shock and its impact on Asia - a key importing and consuming region - is just starting to register among global investors."

He added: "Most Asian currencies and equities were slightly weaker... on the possibility of a more persistent disruption to oil supplies from Iraq."

Leong said the reports "suggest there is little hope that the situation can be brought under control by the Iraqi government any time soon".

He noted that while oil prices have cooled slightly from last week's spike, " if they remain elevated, it would pose inflation risks to Asia's industrialised economies, including South Korea, Taiwan and Singapore, as well as the continental economies of China and India".

Asian currencies have been broadly lower against the US dollar this week. The Chinese yuan is down 0.2 per cent, the Indian rupee has shed 0.7 per cent, while the Singapore dollar has dipped 0.05 per cent to $1.2512 to US$1.

Some companies say they are already feeling the heat from rising oil prices. "Our raw material prices have definitely gone up," said Brien Cai, general manager of plastic household products supplier Citylong Group. The plastics business is closely related to the price of crude oil, he said.

Citylong has not passed on additional expenses to customers.

"If we keep adjusting our prices, customers won't be happy. When times are bad, we just have to manage and absorb the higher costs until it is definite that oil prices are continuously going up," added Cai.

Citylong's manufacturing facility is in Beijing, but the firm is headquartered here.

While Iraq has been grabbing market headlines, many traders and brokers at home were also looking at developments in another country - Brazil, which is hosting the World Cup.

Remisier Desmond Leong said: "Since the World Cup started, the trading room has definitely been quieter."

Singapore's stock market turnover was only S$831 million (US$663 million) yesterday, well down on the past year's daily average of S$1.15 billion (US$917.2 million).

The low volumes mean that price movements in either direction may be exaggerated, with relatively fewer traders having a large say in determining market prices.

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