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Asian Markets Dropped as Oil Prices Decreased

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February 1
9:46 PM 2016

The decrease in oil price has dropped China's stock market to the lowest level for the first time since December 2014. The Shanghai Composite Index dropped 6.4 percent at 2,749.79 on 26 January. The decrease influenced stock markets across Asia such as Nikkei, Hang Seng, Kospi, and other regional markets.

After international sanction against Iran was ended, the Iran's oil began to enter world market and oil prices were decreased below $30.  Iraq also increased its oil production  amount of 4.13 million barrels from the certain oil fields in December 2015 as stated by Iraq's oil ministry. This statement triggered the fear that the oil is oversupply.

According to International Business Times, the Dow Jones Industrial Average closed at 15,885.22 or lower by 1.29 percent on 25 January. From U.K,  London's FTSE 100 declined less than the Dow Jones, only by 0.39 percent  becoming 5,877.00.

Due to the impact of the decrease in oil prices, three major Central Banks will release monetary policy and the decisions being awaited by investors. Those Central Banks are US Federal Reserve, Bank of Japan, and European Central Bank.

Nasdaq reported that what investors worry about are a slowing China, plans to raise interest rates by US Federal Reserve and the decrease of oil prices.

Robert Levine, head of Asian sales and trading at brokerage CLSA said that the volatility in oil is not helping restore confidence back in the market. Further, he explained that worries about the slower global growth are overshadowing the benefits of lower oil.

Meanwhile, Steven Wang, director at Hong Kong-based Reorient Group said that investors are worried about capital outflows from China. Since mid-2015, net capital outflows from China have climbed to $550 billion. The upcoming  China's  Lunar New Year has made the sentiment very weak.

Bill Bowler, sales trader at Forsyth Barr Asia Ltd said that investors are coming to the realization that the government is more reluctant to step in to stop a market plunge. China's central bank focused only on maintaining the currency's stability as quoted by The Wall Street Journal.

Chinese yuan reached 6.62 to one dollar just before the close of Shanghai market on 25 January. It was the lowest level in last two weeks in the offshore market. However, the offshore yuan was roughly unchanged from its level Monday. The relative stability in recent session has helped bring calm to the domestic stock market.

The slowdown in China's economy has brought pessimism to investors. They expected the government to support the market once Shanghai reached around 2,850. They will look forward to monetary policy to prop up the market.

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