Bear market territory beckons as stocks plunge

European stocks hit one-year lows on Monday, with Germany’s blue-chip index looking set to confirm a bear market as Western countries mulled a Russian oil import ban, raising the prospects of broader inflationary risks and slowing economic growth.

The pan-European Stoxx 600 index tumbled 2.4 per cent by 8.12am GMT. The German DAX dropped 3.7 per cent, with the index having shed more than 20 per cent from the record closing high on January 5th, and entering what is known as a bear market territory.

Strong gains in London’s mining and energy giants partially offset losses in the FTSE 100, which dropped 1.1 per cent, while France’s CAC 40 and Italy’s FTSE MIB fell 3.4 per cent and 2.9 per cent, respectively.

Brent crude prices soared near $130 a barrel, their highest since 2008 after US secretary of state Antony Blinken said the United States and European allies are exploring banning imports of Russian oil.

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European oil and gas stocks jumped 3.4 per cent, while miners gained 3.7 per cent – the only sectors trading in the black. Leading the losses, retailers, automakers and banks fell between 5 per cent and 4.7 per cent.

London

The FTSE 100 stock index hit a more than five month-low. The blue-chip FTSE 100 fell 0.8 per cent to its lowest since September 2021, with financial and consumer staple stocks leading losses.

However, energy and mining stocks jumping 5.1 per cent and 2.3 per cent, respectively, capped further losses in the commodity-heavy benchmark index.

The domestically focused mid-cap index fell 2.3 per cent, with travel and leisure stocks among top drags.

Asia

An Asian stock benchmark plunged into a bear market on growing investor concerns about the economic fallout of the war in Ukraine and sustained regulatory pressure on China’s technology sector.

The MSCI Asia Pacific Index tumbled as much as 2.8 per cent, taking its losses from a record reached in February last year to more than 20 per cent.

Hong Kong’s Hang Seng Index slid to its lowest level in almost six years, while a gauge of Chinese shares listed in the city sank to its weakest level since March 2009. Japan’s Nikkei 225 lost nearly 3 per cent to be among the region’s worst performers.

Monday’s broad rout was sparked by fears of a global inflation shock as oil prices extended their relentless surge on the prospect of a ban on Russian crude supplies.

That’s making some of Asia’s emerging markets such as India, South Korea and Thailand particularly vulnerable given these nations’ dependence on imports to meet their demand. Indian stocks have been among the top losers since Russia invaded Ukraine late last month.

The Hang Sang Tech Index plunged more than 5 per cent in Hong Kong. Expectations of higher inflation and interest rates mean a bigger discount for the present value of future profits, hurting growth stocks with the highest valuations.

Asian equities have struggled as investors also grapple with renewed concerns about China’s crackdown on private enterprise at a time when earnings growth in the region is already lagging global peers.

On the positive front, Beijing on Saturday announced a gross domestic product growth goal of “about 5.5 per cent” for 2022, at the higher end of many economists’ estimates.

Still, China stocks weren’t immune to Monday’s selloff, with the benchmark CSI 300 Index losing as much as 3.2 per cent.

The MSCI Asia Pacific Index is now down about 10 per cent in 2022 after trailing its peers in the US and Europe last year by a wide margin. The S&P 500 Index is down about 9 per cent so far this year while the Stoxx Europe 600 Index has slumped nearly 14 per cent.

“The shock to the demand side, namely disappearance of exports to Russia, will be concentrated to Europe and is not large enough to derail the global economy,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management.

“The world economy can manage to withstand oil prices around $120 per barrel. But if they rise to $150-160, there will be a recession and investors will have to change their scenarios that the global economic recovery will continue.”