Failed Oil Deal And Japan’s Earthquake Trigger Downward Spiral In Asian Shares

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There was little to show for Asia shares in Monday’s trading as the failed oil deal doused investor sentiment, pulling down mainly energy and financial stocks in the region. The earthquakes that hit Japan last Thursday also triggered massive stock selloff.

Japan’s Nikkei sheds 3.4%

Japan’s Nikkei 225 shed 572.08 points, thus falling 3.4% to register its worst daily performance in terms of percentage since April 1. The Monday’s action put Nikkei’s loss for the year at 14.5%. At that point, Nikkei becomes the poorest performer so far this year among Asia’s major stock benchmarks.

The worst hit sectors in Japan were the insurance and automotive industries. In addition to the failed oil deal in Doha over the weekend and the earthquake concerns, a stronger yen also had a hand in Nikkei’s fallout.

The JPYUSD (JPYUSD) edged up to 107.85 by afternoon, almost touching a new 18-month high. The stronger yen further complicates trade matters for Japanese exporters as their products become more expensive, thus less competitive in the global market. Additionally, a stronger yen means that international sales are worth less when translated to local currency.

In the past week when the yen appeared to be gaining ground against the greenback, Tokyo warned of possible measures to weaken the domestic currency’s exchange rate. Direct sale of the dollar was mooted.

Other Asian markets

In China, the Shanghai Composite Index was off 1.4% and the smaller Hang Seng Index also declined 1.2%. It was the same narrative in South Korea and Australia as the Kospi and S&P/ASX 200 fell 0.3% and 0.4% respectively.

The oil factor

Oil was seen as the main trigger of the selloff in Asian markets. OPEC members meeting in Doha, Qatar on Sunday failed to reach an agreement on how to deal with the problem of crude oil oversupply that has doused prices. In the last week ahead of the much-publicized meeting, investors had hinged their hopes that OPEC would reach a deal to curtail oil production, a move that would have helped lift the prices of crude oil.

Without anything concrete coming from the Doha meeting, iPath S&P GSCI Crude Oil Total Return (NYSEARCA:OIL) traded down nearly 3% to $40.47 a barrel by the afternoon in Asia.

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