An ongoing Omicron wave and Ukraine’s humanitarian crisis – what it means for Hong Kong traders and investors

As the humanitarian crisis in Ukraine intensifies, financial markets have seen tumultuous development. Though situated on the other side of the world, economic repercussions have been felt through Eurasia and around the world as countries impose sanctions on Russia in hopes of curbing the war in Ukraine. Coupled with an ongoing battle against the fifth wave of COVID, uncertainty looms on the horizon for Hong Kong traders and investors.

On Monday, 7 March, Hong Kong’s Hang Seng Index (HSI.I), comprised of the 60 largest stocks traded in the city, fell 3.6% in early trading. This came after its sharp, low finish the previous Friday. Currently, the HSI.I is at its lowest since July 2016.

This comes as little surprise as traders and investors had plunged into a mad scramble earlier in the day, following talks of American and European bans on Russian oil imports as their next move against Moscow. With chaos in the commodities market, Brent further increased by $7.90 to $126.01 despite having climbed 21% the week before, while US crude rose $6.67 to $122.35.

This is because Russia is one of the world’s largest exporters of petroleum, sending 2.5 to 3 million barrels abroad per day. These barrels account for 8% of the world’s supply of oil, and commodity analysts estimate that a potential ban could lead to oil prices doubling to $200 a barrel.

Hong Kong’s energy has always come from Singapore, with the island-country accounting for over three-quarters of Hong Kong’s fuel oil imports and over three-quarters of its unleaded motor gasoline imports. However, as Europe and the US mull over this potential ban as further economic penalty against Moscow, it is becoming increasingly apparent that no producer can replace Russia in this global economy.

We have seen this before just a month ago, when the rest of the world adapted to living with COVID and began to open up. To combat a potential surge in global fuel costs after months of lockdown and the energy crisis in the UK, Hong Kong’s two power companies raised energy rates by as much as 7% despite dipping heavily into the city’s Tariff Stablisation Funds.

The escalation of war and the increasing number of sanctions imposed against Russia will continue to upend markets and drive commodity prices such as petroleum higher everywhere around the world.

Hong Kong residents are also currently plagued with the fifth wave of COVID and severe pandemic fatigue, which has been sending local stocks tumbling for the past few months. With imposed curfews of no dining-out past 6pm and visits to bars and gyms made illegal, many facilities and small businesses have been forced to shut down as they go bankrupt.

In the wake of dismal conditions, Omicron continues to ravage the city and sees no signs of stopping. In the past week, Hong Kong has seen an average of about 40,000 new cases daily. With a rising death toll due to vaccine hesitancy amongst its ageing population, local authorities have reported death rates hitting the highest worldwide in just a few weeks.

With Hong Kong’s strict quarantine policy for all those infected with Omicron, which consists of carting them off to isolation centres until they emerge with a negative test, daily consumables have shot up in price as many of society’s key workers have been sent away. A decrease in truckers and food sellers have led to transport interruptions, jacking up the prices of local groceries.

At present, it seems as though Hong Kong traders are backed into a corner. Financial executives in the city have been closely monitoring the market on all fronts, and many have participated in heavy selloffs to cut losses. In this time of high volatility, banks with local branches in the city have also been helping retail traders find their feet and navigate market turmoil, providing educational resources on alternate trading options. However, as another hectic day comes to an end, what the city’s next step is, is as good as anyone’s guess.