Asian stocks fall to near 1-year lows as oil rally fuels inflation fears

Asian shares tracked a broad sell-off on Wall Street to weaken for a third straight session on Tuesday, as investors feared oil prices hitting multi-year highs would add to inflationary pressures caused by supply chain disruptions.

US and European stock futures edged up, with S&P 500 e-minis rising 0.01 per cent, the pan-region Euro Stoxx 50 futures gaining 0.2 and FTSE futures gaining 0.4 per cent.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) dropped as much as 1.3 per cent, declining for a third consecutive session. Japan stocks (.N225) were down 2.5 per cent, South Korea (.KS11) gave up 2 per cent and Australia (.AXJO) shed 0.4 per cent.

"Investors are clearly worried about inflation due to supply chain disruptions and the rally in energy prices," said Vasu Menon, executive director of investment strategy at OCBC Bank.

The drop in markets took MSCI's main benchmark to 619.77, the lowest since November 2020 but it pared losses to be down 0.6per cent in late Asia trade. The index has shed more than 5 per cent this year, with Hong Kong and Japanese markets among the big losers.

"We have seen tech stocks outperform value stocks, so if inflation remains a worry, then tech stocks tend to get hit," Menon said.

Oil prices reached three-year peak on Monday after OPEC+ confirmed it would stick to its current output policy as demand for petroleum products rebounds, despite pressure from some countries for a bigger boost to production.

Underscoring the rise in commodity prices, the Refinitiv/CoreCommodity CRB index (.TRCCRB) rose to 233.08 on Monday, the highest in more than six years. US oil was steady at $77.68 a barrel, a day after hitting its highest since 2014. Brent crude stood at $81.5 after rising to a three-year top.

"OPEC+ may inadvertently cause oil prices to surge even higher, adding to an energy crisis that primarily reflects very tight gas and coal markets," said Commonwealth Bank of Australia's commodities analyst Vivek Dhar.

"That potentially threatens the global economic recovery, just as global oil demand growth is picking up as economies re‑open on the back of rising vaccination rates," Dhar said in a note.

Market focus in Asia was on whether embattled property developer China Evergrande (3333.HK) would offer any respite to investors looking for signs of asset disposals.

Shares in the world's largest indebted developer were halted for trading on Monday but more Chinese property developers grappled with ratings downgrades on worries about their ability to repay debt. read more

The Dow Jones Industrial Average (.DJI) fell 0.94 per cent to 34,002.92, the S&P 500 (.SPX) lost 1.30 per cent to 4,300.46 and the Nasdaq Composite (.IXIC) dropped 2.14 per cent to 14,255.49 as investors dumped Big Tech stocks in the face of rising Treasury yields.