Assessing Asia Stock Markets’ Fallout From Crude’s Plunge

(Bloomberg) -- There are few places to hide in Asia and elsewhere today as investors grapple with a collapse in oil prices that adds yet another headwind to a global economy already staggered by the coronavirus outbreak.

Yet there are glimmers of potential to be found across Asia once the dust settles. While the likes of Indonesia, Malaysia and Australia will be “in the firing line” as regional oil and natural resource producers, with Singapore’s petrochemical industry also exposed, some of the region’s biggest markets may find themselves in a slightly better position, said Jeffrey Halley, senior market analyst for Oanda Asia Pacific Pte.

“The only silver lining will be that China, South Korea and Japan are all huge net oil importers,” though that will likely be cold comfort for now with the latter two having little wiggle room on the monetary policy front, Halley said. “The only winner on the day is likely to be India, a huge net energy importer grappling with current account issues, a banking crisis and stagflation pressures. Today’s oil price collapse will be a welcome shot in the arm for the beleaguered Reserve Bank of India.”

Crude oil is India’s biggest import. On the benchmark Sensex Index energy stocks account for about an 11% weighting, with Mukesh Ambani’s conglomerate Reliance Industries Ltd. making up the bulk of that exposure thanks to its oil refining operations.

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“Asia refiners will benefit from a sharp cut in OSP (official selling price) and lower energy cost and fuel loss on oil drop, but the question is how much of the cost savings they need to pass through against a sluggish demand backdrop,” Oscar Yee, energy analyst with Citigroup Inc., said in a Sunday note. “Refiners seem to benefit from lower OSP, but huge first quarter results miss and uncertainty in global demand may keep near-term sentiment weak.”

During the last big oil collapse from late 2014 to early 2015, Asia refining and chemical stocks underperformed during the initial price drop but hit bottom about 1 to 2 months before the oil trough, Yee said.

South Korea’s S-Oil Corp., down as much as 9% today, is the biggest potential beneficiary of low prices given it sources 100% of its crude from Saudi Arabia, he said. Taiwan’s Formosa Petrochemical Corp. and China’s Sinopec Shanghai Petrochemical Co. also source most of their supply from the Middle East, the analyst said.

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