Geopolitical tension continues to take centre stage
• European equities traded at their lowest level in four months as geopolitical tensions between the US and Russia put pressure on risk assets, leading investors to take refuge in safe haven assets.
• The Stoxx 600 index closed 1.3% lower after declining over 1.9% in the earlier session, led by weakness in automakers and technology stocks. Meanwhile, trading volumes were lower as US markets closed for a holiday.
• This year, European stocks have been shaken amid the hawkish tilt by central banks. Higher valuation sectors, including technology, have been sensitive to the outlook of interest rate hikes, while cheaper value stocks have outperformed.
• Furthermore, the recent downturn in equity markets has made economically sensitive cyclical stocks more appealing than defensive ones.
• Commodity markets found support as investors weighed the risk of supply disruptions on energy and commodities should the tension escalate. In oil markets, international benchmark Brent crude climbed 1.07% to US$94.41 per barrel while US crude added 1.1% to US$91.98 per barrel.
• Gold benefited from the renewed demand for haven assets, advancing to its nine-month high of US$1,908 an ounce. In our view, it remains a tail risk for a full-fledged invasion of Ukraine by Russia to
overthrow the government in Kyiv and occupy the whole country.
• In Asian markets, stocks recovered slightly from their earlier decline as investors weighed the outlook of a possible diplomatic talk between the US and Russian leaders to discuss the stability in Europe. Following the news, Japanese and South Korean indices trimmed their losses by around 2%, with the Topix index down 0.8% while the Kospi index lost 0.5%.
• Chinese technology stocks were jittery after regulators announced new rules for food delivery platforms on Friday. China issued new guidelines requiring food-delivery platforms to cut the fees they are charging restaurants.
• While many investors believe that China may ease the regulatory crackdown on the private sector to focus on growth, the new rules on Friday had reminded them to stay cautious. Alibaba and Tencent stocks were the biggest underperformers on the MSCI Asia gauge as sentiment turned bearish.
Elsewhere, in the Philippines, equities fell as the balance of payments data in January swung to the deficit range. The bourse fell by over 2.2% on the day, clocking the most significant decline among Asian benchmarks.