China Commodities Slump Weighs on Asian Shares -- Update

By Kenan Machado Features Dow Jones Newswires

Commodities took center stage in Asia Friday, with a slump in Chinese metals prices and weakness in crude oil sending equity markets across the region lower.

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A drop in oil around midday in Asia--with prices tumbling 3% from Thursday's settlement in New York--spooked investors, while trading sentiment was already weak amid fears that Beijing's crackdown on speculation and borrowing could hurt metals demand.

The Shanghai Composite Index was down 0.7% at the midday break, while Hong Kong's Hang Seng Index extended losses near the end of the morning session to fall 1.2%, and the Hang Seng subindex that tracks Chinese shares also widened losses, to a 1.9% decline.

Markets in Japan and South Korea were closed for holidays.

Brent crude futures, a benchmark for international oil prices, fell 2.6% at $47.11 a barrel in Asian trade after earlier testing a low of $46.64 a barrel. Meanwhile, U.S. WTI crude oil futures fell about 3% to $44.18 a barrel.

"There are a lot of concerns out there on [oil] oversupply," said Andrew Sullivan, managing director of sales trading at Haitong International Securities in Hong Kong, noting the risk that lower oil and energy consumption could indicate slack demand, threatening the global economic recovery.

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"Markets are nervous ahead of the [U.S.] jobs data and there is a fear that there might be knee-jerk reaction when Europe comes online," he said.

Weighing on the Hang Seng Index were declines in key Chinese oil firms, with PetroChina falling 3.2%, while Sinopec slumped 2.8% and offshore oil producer Cnooc declined 1.8%. In Australia, Santos and Woodside Petroleum were down around 3% each.

Meanwhile, investor worries of China's regulatory crackdown on speculative trading sent commodity futures prices sharply down for a second straight session

The most actively traded iron-ore futures contract was down 7.7% on the Dalian Commodity Exchange, after tumbling by the 8% daily limit on Thursday.

Meanwhile, in Shanghai, hot-rolled coil futures prices fell 4.2% with steel-rebar futures off 3.1%. Rubber prices were down 4.7%.

On Thursday, already weak investor sentiment got a fresh hit after six Chinese government agencies pledged to curb local-government debt by increasing oversight of the projects they are pumping money into.

"Financial market regulatory scrutiny certainly appears to be driving liquidation across a range of asset classes onshore," said Bill Bowler, a Chinese equities trader at Forsyth Barr in Asia.

There was also some anticipation that the efforts could continue to tighten bank credit and impede growth, he said.

Weaker commodities prices were also dragging down stocks in Australia, with the S&P/ASX 200 extending losses to trade down 0.7%. Among the index heavyweights, BHP Billiton was off 3%, Fortescue fell 2.9% and Rio Tinto lost 2.6%.

Bucking the trend, shares of Macquarie were up 3.3%, after net profit for the Australian banking group rose 7.5% in the last fiscal year, beating analysts' forecasts.

Still, analysts expect that fears of any hard landing in China driven by the deleveraging move may be short-lived.

Tim Condon, head of research for ING in Asia, said he expects the People's Bank of China to have learned from its June 2013 experience, when the introduction of measures to curb the growth of shadow banking caused the interbank market to seize up.

Yifan Xie, Lucy Craymer and Biman Mukherji contributed to this article.

Write to Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

May 05, 2017 01:27 ET (05:27 GMT)