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HONG KONG – Asian stock markets tumbled while safe haven assets and oil prices jumped Monday, January 4, in the first full day’s trade of 2016 as a flare-up in tensions between Iran and Saudi Arabia raised concerns about the volatile Middle East.
Saudi Arabia severed diplomatic ties with its old foe Iran Sunday after protesters ransacked its embassy in Tehran in response to the execution of a Shiite cleric.
Riyadh gave Iranian diplomats two days to leave the kingdom, while the supreme leader in Tehran said Saudi Arabia would face “quick consequences” for the execution.
Relations between Sunni-ruled Saudi Arabia and Shiite-ruled Iran have been strained for decades, with Riyadh frequently accusing Tehran of interfering in Arab affairs.
The two countries have also been divided over the nearly 5-year war in Syria, where Iran is backing the regime, and the conflict in Yemen where a Saudi-led coalition is battling Shiite rebels.
The developments are the latest to inflame the powder keg region and add to a list of negative news that hurt world markets over the past year, including China’s economic malaise, plunging oil prices, and anemic global growth.
“It’s going to be a testy start to the week,” Angus Nicholson, a Melbourne-based market strategist at IG Limited, said.
“The execution raises uncertainty about the oil price with concerns and tensions in the Middle East and that will be a real driving force.”
‘Not good news’
With Saudi Arabia and Iran two of the biggest producers of oil, the price of the commodity rallied in early trade Monday, having suffered a severe slump in 2015 on the back of weak demand and a global glut.
United States benchmark West Texas Intermediate climbed 1.7% and Brent surged 1.9%.
Investors fled to safe investments such as the dollar and yen, sending stocks and emerging market currencies tumbling.
Tokyo’s Nikkei index lost 2.6% by lunch and Hong Kong was off more than 2% while Seoul shed 1.5%.
Shanghai tumbled more than 3% after a closely watched gauge showed factory activity in China continued to shrink in December, despite a marginal improvement.
On forex markets the dollar surged one percent against its Australian counterpart, while it was up 0.9% against the South Korean won and 0.7% against the Malaysian ringgit.
It also saw sharp gains against the Taiwan and New Zealand dollars as well as Indonesia’s rupiah and the Thai baht.
However, the greenback fell below 120 yen, with the Japanese unit considered a safe haven investment in times of turmoil and uncertainty.
“The Saudi situation is, geopolitically, not good news,” Kengo Suzuki, chief currency strategist at Mizuho Securities in Tokyo, told Bloomberg News.
Key figures around 0230 GMT
- Tokyo – Nikkei 225: DOWN 2.6% at 18,541.41 (break)
- Hong Kong – Hang Seng: DOWN 2.1% at 21,463.58
- Shanghai – composite: DOWN 3.3% at 3,424.21
- Euro/dollar: DOWN at $1.0845 from $1.0855 late Thursday
- Dollar/yen: DOWN to 119.78 yen from 120.27 yen
- New York – Dow: DOWN 1% at 17,425.03 (close)
- London – FTSE 100: DOWN 0.5% at 6,242.32 (close)
– Rappler.com
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