The economic fallout of the Russian invasion of Ukraine is hitting hard in Asia.
Real Money's Alex Frew McMillan recently assessed where the pain is likely to be worst.
“The high-flying Indian stock market has lost its way in the last five weeks, and risks further falls as the Indian economy suffers the fallout from the Russian invasion of Ukraine,” McMillan wrote. “India is the world's third-largest oil importer, behind China and the United States, shipping in 86% of the oil that it needs,” McMillan noted.
At that rate, “every 10% increase in the cost of oil hurts the Indian economy to the tune of -0.20 basis points, Nomura economists Sonal Varma and Aurodeep Nandi calculate” McMillan added. “That is by far and away the most-severe impact in Asia, where most nations import oil, and will see their economies suffer.”
In addition to slowing growth, “a 10% hike in the oil price also causes a 0.40 percentage point increase in Indian inflation,” McMillan said. “That’s level with the Philippines, another major importer of both energy and food, for the biggest impact in Asia.”
Hong Kong stocks have also suffered. The city-state is already contending with an escalating Covid crisis that threatens to get out of control, with record new infections set and reset.
“Hong Kong stocks have historically dropped sharply in reaction to military conflicts such as the Gulf War, the Iraq war, and Russia's annexation of the Crimea,” McMillan noted. “But, CCB International's analysts note, the Hang Seng has rebounded between 3% and 11% in the following quarter after the onset of fighting.”
McMillan believes India and Hong Kong would be “markets for Asia-focused investors to avoid” at least until there's greater clarity on the multiple disruptions stemming from the Russian invasion of Ukraine.
