TOKYO — Surging energy prices are weighing on Asian equity markets as signs of inflationary pressure dampen global investors’ appetite.
Japan’s blue-chip Nikkei Stock Average dropped over 980 points, or 3.5%, on Tuesday morning to hit its lowest point in over a month.
Shares in SoftBank Group slid over 5%, while Uniqlo operator Fast Retailing sank over 7%.
Tokyo’s drop follows declines in U.S. stocks overnight. The 10-year Treasury yield has remained at high levels and fears of rising inflation have fueled a tech stock rout on Wall Street.
Soaring energy prices are also feeding concerns about inflation.
West Texas Intermediate, the global benchmark for oil prices, hit a seven-year high of $77 per barrel on Tuesday after OPEC+, a much larger group of oil-exporting countries than the original bloc, said the previous day it would stick to an existing agreement for a gradual increase in output.
That agreement calls for adding 400,000 barrels per day to the market in November, rather than raising production levels significantly. The group is cautious about putting more oil on the market as it expects accelerating production increases amid a modest rise in demand will lead to oversupply and a drop in the price of crude.
Prices of liquid natural gas are also soaring, with the benchmark LNG price in Asia at $35 per million Btu as of Tuesday, up 136% from the beginning of the year to hit an all-time high, according to FactSet data and analysts.
China has been ramping up its LNG imports amid widespread power shortages and soaring coal prices. The country relies heavily on coal for power generation, but is having trouble securing supplies from India and Indonesia as heavy rainfall in those countries has disrupted output. To meet increasing power demand for winter, China is now trying to purchase more LNG, pushing prices higher.
Tatsufumi Okoshi, a senior economist at Nomura Securities, expects LNG prices to stay at the current level for the time being. “The peak in energy demand in winter has yet to come, and a tight market is expected to continue,” Okoshi said. “Due to soaring energy prices, there is a growing sense of caution about inflation, making it difficult for stock prices to rise.”
Toru Nishihama, a chief economist at Dai-ichi Life Research Institute, flagged similar concerns.
“There are growing concerns that a rise in oil prices will lead to the emergence of global inflation, which will throw cold water on economies. Going forward, movement in global financial markets will not only depend on the trends in COVID infections and its impacts to the global economy, but also [on] international crude oil prices.”
Stocks were also lower elsewhere in Asia on Tuesday as surging energy prices, combined with uncertainty over debt problems at property developer China Evergrande Group, continue to spook investors.
South Korea’s Kospi was down over 2% while Hong Kong’s Hang Seng index dropped around 1%. Benchmarks in Taiwan and Australia also declined. Mainland China’s stock market was closed due to a national holiday.