Global Shares Decline Amid Oil's Weakness

By Ese Erheriene Features Dow Jones Newswires

Stocks were lower across the Asia-Pacific region on Wednesday, as global price declines for oil hurt energy companies, though mainland China markets were resilient after MSCI Inc. said it would include Chinese stocks in its emerging-markets index.

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Oil prices returned to bear-market territory overnight as the U.S. benchmark has fallen 20% from its last high point, with cuts by the Organization of the Petroleum Exporting Countries offset by increasing production elsewhere.

Australia's S&P/ASX 200 slid 1.5%, with the energy subindex off 2%. The Nikkei Stock Average was 0.5% lower, edging down from a 22-month closing high in the previous session. Inpex and Japan Petroleum were down 1.4% and 1.9%, respectively, with the Topix mining subindex declining 1.6%.

South Korea's Kospi was down 0.6%, the Hang Seng Index was 0.6% lower and the NZX index in New Zealand fell 0.6%.

"Oil is the main driver" for regional losses, said Tareck Horchani, head of Asia-Pacific sales trading at Saxo Capital Markets. "OPEC cuts are not having the expected effect as the shale production in the U.S. is actually growing."

In Asia trading, Nymex crude was last down 0.2% at $43.44 a barrel, while Brent crude was 0.2% lower at $45.93, adding to the overnight declines.

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Meanwhile, positive sentiment due to the inclusion of Chinese stocks in the MSCI's emerging-market index was just enough to offset outflows from the energy sector.

The Shanghai Composite Index was up 0.2% in the morning session and stocks in Shenzhen were 0.1% higher.

"China's entry into the MSCI global indices is a historic milestone," although challenges remain, said Hao Hong, managing director and head of research at Bocom International.

Worries linger that China's domestically traded A-shares are overvalued when compared with global levels. In addition, there are concerns about whether China's volatile market will adapt to international best practices.

Investors' reaction thus far was within expectations, given the limited number of stocks covered by the MSCI decision. Xu Yang, an analyst at Hua An Securities, says the move's near-term impact is mostly on raising market sentiment.

"As the world's second-largest stock market, A-shares don't lack money...Confidence is what this market lacks," he said.

Meanwhile, financial stocks across the region also faced selling pressure, with local weakness exacerbated by dovish comments from central banks in the U.K. and U.S. Japan's Topix bank subindex was 1% lower, while the Hang Seng finance subindex was down 8%. In Australia, the 'big four' banks-- Westpac Banking, Commonwealth Bank of Australia, National Australia Bank, and Australia and New Zealand Banking--fell between 1.5% and 2.7%.

In currencies, the offshore yuan gave up most of the gains accrued in the wake of MSCI's decision. The U.S. dollar-yuan was recently trading at 6.8206, compared with 6.7164 before the MSCI news.

Speculation that demand for the yuan is coming from investors seeking to buy Chinese shares is premature, notes Stephen Innes, head trader for Asia at Oanda. Investors are "laying the groundwork," but any actual buying of either the yuan or Chinese shares is a long way off, he said.

Kenan Machado and Shen Hong contributed to this article.

Write to Ese Erheriene at ese.erheriene@wsj.com

Corrections & Amplifications

Story corrected at 0724 GMT. The original incorrectly stated the offshore yuan was near a nine-month high in the 14th paragraph.

In currencies, the offshore yuan gave up most of the gains accrued in the wake of MSCI's decision. "Global Stocks Lower; China Shows Resilience After MSCI Inclusion" at 0446 GMT, incorrectly stated the offshore yuan was near a nine-month high in the 14th paragraph. (June 21)

Global stocks extended losses Wednesday after a steep drop in oil prices, although Chinese shares outperformed after MSCI Inc. said it would add Chinese shares to its emerging-markets index.

The Stoxx Europe 600 was down 0.7% in the early minutes of trading, led lower by banks, autos and insurance companies. Markets across Asia moved lower amid declines in banks and energy companies, while futures pointed to a 0.2% opening dip for the S&P 500.

The S&P 500 and Dow Jones Industrial Average posted their biggest daily losses in over a month Tuesday while government bonds firmed as oil prices dropped to their lowest level since September.

WTI crude futures were last down 0.1% at $43.45 a barrel after returning to bear-market territory Tuesday as cuts by the Organization of the Petroleum Exporting Countries were offset by increasing production elsewhere. U.S. oil production has climbed around 7% since OPEC announced plans to cut output in November, and the number of active rigs in the U.S. is at a two-year high.

Yields on 10-year U.S. Treasury notes were little changed at 2.152% Wednesday after the fall in crude sent yields down to 2.153% Tuesday, close to their low of the year. Lower energy prices tend to damp inflation expectations, boosting the value of long-term debt. Yields move inversely to prices.

The impact of falling oil on credit markets was limited and largely contained to oil-and-gas companies, according to strategists at Commerzbank.

Earlier, stocks were lower across the Asia-Pacific region as lower oil prices hurt energy companies and financial stocks fell amid an earlier decline in global government bond yields.

The Nikkei Stock Average was down 0.5% as the yen strengthened, while South Korea's Kospi and Hong Kong's Hang Seng Index were also 0.5% lower. Australia's S&P ASX 200 logged its biggest decline of the year, falling 1.6% amid further losses for bank shares and mining and energy companies.

Mainland China markets inched higher after MSCI Inc. said it would include Chinese stocks in its emerging-markets index. The Shanghai Composite Index was up 0.3% and stocks in Shenzhen were up 0.2% as positive sentiment from the MSCI decision narrowly offset outflows from the energy sector.

Xu Yang, an analyst at Hua An Securities, said the move's near-term impact was mostly on raising market sentiment.

"As the world's second-largest stock market, A-shares don't lack money...Confidence is what this market lacks," he said.

Some investors worried that China's domestically traded A-shares were overvalued when compared with global levels, and there were also concerns about whether China's volatile market will adapt to international best practices.

"China's entry into the MSCI global indices is a historic milestone," although challenges remain, said Hao Hong, managing director and head of research at Bocom International.

In currencies, the WSJ Dollar Index was flat following two days of gains after Federal Reserve Bank of Dallas President Robert Kaplan said he would like to see more evidence of inflation before raising interest rates again.

The British pound edged down 0.2% to $1.2607, extending Tuesday's decline, while the dollar fell 0.3% against the yen.

In corporate news, shares of Provident Financial PLC fell nearly 15% after it warned that a disruption caused by a transition of the home credit business would reduce the unit's 2017 adjusted earnings by around 48%.

Kenan Machado, Stephanie Yang, Tapan Panchal and Shen Hong contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Ese Erheriene at ese.erheriene@wsj.com

(END) Dow Jones Newswires

June 21, 2017 03:53 ET (07:53 GMT)