Emerging-market currencies and stocks slumped in Asia trading on Monday as worries over and surging oil prices weigh on sentiment for risky assets.
A gauge of developing nations’ currencies dropped 0.5%, declining for a second session in a row as the dollar strengthened.
The Philippine peso and Taiwan’s dollar fell the most among peers. South Korean markets were closed for a holiday. EM equities, meanwhile, dropped as much as 1%, the most in more than two weeks.
The escalating tensions in Iran, which have spread to the broader region, have disrupted various sectors from oil and shipping to air travel.
surged to its highest level in more than a year before paring while the greenback and gold jumped as investors piled into safe haven assets, further hurting emerging-market currencies and fueling inflation concerns.
“This is a shock that pushes EM weaker,” said Brendan McKenna, an emerging market strategist at Wells Fargo in New York, adding that the Iran response has been more hostile than before with the Strait of Hormuz effectively closed and more aggressive US-Israel cooperation.
“That shock, combined with the theme that EM is overvalued and overowned at current levels, should drive a selloff in the early days of the conflict,” he said.
Some countries with high dependence on oil imports, like South Korea, Taiwan, India, the Philippines and Thailand, might see their currency underperform more, according to Sim Moh Siong and Christopher Wong, strategists at Oversea-Chinese Banking Corp.
The escalation of the conflict also lifted energy, shipping, defense and gold shares in Asia while pushing down airlines, travel and growth stocks. Taiwan’s shipping companies Wan Hai Lines and Evergreen Marine rose while Singapore Airlines, Japan Airlines and Eva Airways slumped.
Bloomberg Economics said the conflict could lead to a significant increase in oil prices to as high as $108 per barrel if the Strait of Hormuz is closed.
“The scope of the conflict appears vast and the stakes high — with Iran confirming the supreme leader was killed,” analysts led by Dina Esfandiary wrote. “This confrontation could prove longer and more intense than the 12-day war in June.”
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