Commentary: Why the Iran war has morphed into panic selling in\nAsia<\/p>\n
International diversification has been a major theme this year, but\nthe one-way traffic into North Asian markets has been heavy, says Shuli\nRen for Bloomberg Opinion.<\/p>\n
HONG KONG: It turns out, the biggest financial victim of United\nStates President Donald Trump\u2019s decision to strike Iran is not the\nS&P 500, but equity markets across North Asia.<\/p>\n
Panic selling was sweeping across Hong Kong, Seoul and Tokyo on\nWednesday (Mar 4). South Korea\u2019s benchmark Kospi index headed for its\nbiggest two-day drop since 2008.<\/p>\n
The selloff may have come as somewhat of a surprise for investors.\nNorth Asia is known for its dependence on oil and natural gas imports,\nbut if we are talking about an economic meltdown, the Iran conflict may\nbe pushing Europe into an energy crisis first.<\/p>\n
In addition, unless the closure of the Strait of Hormuz gets\nprolonged, economies in the region have buffers thanks to their national\nreserves. Japan has an estimated 254 days of oil stockpile; China\u2019s\ndomestic gas holdings are worth about an entire year of its Gulf\nimports.<\/p>\n
So why are North Asian markets so vulnerable?<\/p>\n
ALL ABOUT AI BEFORE IRAN WAR<\/p>\n
Often, steep market declines have a lot more to do with flows than\nfundamentals.<\/p>\n
Prior to the Iranian crisis, hot money was flooding into Asia,\nlooking for semiconductor and hard tech plays as global investors\nrotated out of software companies into AI infrastructure. The broadening\nof the AI trade laid the foundation for this week\u2019s rout.<\/p>\n
Indeed, until now, the investment narratives were all for Asian hard\ntech. Samsung and SK Hynix were believed to have entered a years-long\nsuper cycle, after both companies said that the supply crunch in memory\nchips would continue until 2027. Meanwhile, TSMC\u2019s strong earnings\nbolstered the case that US hyperscalers will keep on spending, ensuring\nwindfalls for Asian suppliers.<\/p>\n
No surprise that hot money chased after the few winners. In the US,\nthe US$16 billion iShares MSCI South Korea ETF recorded over US$1.2\nbillion in inflows in the week before the Middle East turmoil, the most\nin the fund\u2019s 25-year history.<\/p>\n
In South Korea, retail investors, who for decades skirted the\nblue-chip Kospi index, went on a buying spree. The number of active\naccounts and margin loans both hit record highs.<\/p>\n
In other words, the Asian AI infrastructure trade was getting\ncrowded.<\/p>\n
HEAVY DIVERSIFICATION INTO ASIA<\/p>\n
As the Iran conflict drags on, the tide is starting to recede. A\nsudden strengthening of the US dollar is eroding the case for investing\nin emerging markets.<\/p>\n
Meanwhile, there are worries that local benchmark interest rates will\nhave to rise as an extended oil shock pushes up inflation. Higher money\nmarket rates raise the cost of margin-financed trading. Until recently,\nfinancial conditions in Korea were at multi-decade lows.<\/p>\n
It\u2019s perhaps best to consider this selloff as a painful but healthy\ncleansing. It de-leverages and chases away momentum-driven\nspeculators.<\/p>\n
What\u2019s left will be those who care about company earnings and\nreasonable valuations. After all, upward earnings revisions are a lot\nstronger in Asia than in the US.<\/p>\n
International diversification has been a major theme this year as\nglobal asset managers look to reduce their heavy exposure to US assets.\nBut the one-way traffic into North Asia has been so heavy that an\nexogenous shock thousands of miles away is creating sharp reversals.<\/p>\n
Unfortunately, the Sell America trade has morphed into a blanket\nselling of Asian assets.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/commentary-why-the-iran-war-has-morphed-into-panic-selling-in-asia-1772665057", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }