Asia Markets

Stocks in Asia decline after fall in oil; MSCI says yes to China A-shares

Key Points
  • MSCI announced it would add 222 mainland Chinese stocks to its benchmark emerging market index from next year
  • Oil prices trended lower after tumbling overnight on news of increased production
  • Toshiba selected a preferred bidder for its flash memory business

Asian bourses closed mostly lower on Wednesday following MSCI's decision to add mainland Chinese stocks to its emerging markets index gradually and as oil prices slipped around 2 percent overnight.

The declined 0.45 percent or 91.62 points to close at 20,138.79 and the Kospi fell 0.49 percent or 11.7 points to end at 2,357.53.

Australia's benchmark S&P/ASX 200 index tumbled 1.59 percent or 91.553 points to close at 5,665.7, dragged lower by its energy and materials sub-indexes which were down 2.57 percent and 2.5 percent respectively.

Markets in greater China were mixed following MSCI's decision to include A-shares. The traded lower by 0.48 percent at 3:00 p.m. HK/SIN, but mainland markets made gains. The rose 0.52 percent or 16.3641 points to end at 3,156.3777 and the Shenzhen Composite closed 0.433 percent or 8.1282 points higher at 1,887.1927.

MSCI announced it would add China A-shares to its MSCI Emerging Markets Index after rejecting China's previous three attempts. The index giant said it will add 222 China A Large Cap stocks from next year.

Inclusion in the MSCI will provide "only a modest boost" to capital market reforms in China, especially in the areas of shareholder rights and debt market reform, but is unlikely to be a breakthrough, the Eurasia Group said in a statement.

"Regardless of the MSCI decision, Chinese equity markets still suffer from serious institutional shortcomings as well as heavy political influence," said Michael Hirson and Christopher Beddor from Eurasia Group.

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The MSCI decision was overshadowed by the fall in oil prices to seven-month lows following news of an increase in production from Libya and Nigeria. Prices of U.S. West Texas Intermediate were in bear territory after falling more than 20 percent from recent peaks overnight.

Brent crude was off by 0.09 percent at $45.98 a barrel and U.S. WTI crude edged higher by 0.02 percent to trade at $43.52.

News that Saudi Arabia has relieved Muhammad bin Nayef as crown prince, replacing him with Mohammad bin Salman has not riled prices.

Why $43 oil won't cut it

In Australia, energy stocks traded in the red given the fall in oil prices, with oil and gas producer Santos closing down by 2.01 percent. Major banking stocks were also under pressure, with National Australia Bank declining 2.94 percent and ANZ down by 1.79 percent.

In Japan, Toshiba announced it would be selecting a consortium led by the Innovation Network Corporation of Japan as a preferred bidder for its flash memory unit. The consortium consists of the INCJ, Bain Capital Private Equity and the Development Bank of Japan. Toshiba shares closed 2.18 percent lower at 323 yen a stock.

The dollar traded at 97.747 against a basket of rival currencies, after trading as high as 97.871 in the previous session. Against the yen, the dollar traded at 111.18, off a high of 111.50 seen earlier.

The traded at $1.2606 after falling as low as $1.2617 overnight. Pound sterling fell to a two-month low after Bank of England Governor Mark Carney said the central bank would not be raising interest rates anytime soon due to uncertainty surrounding Brexit.

Markets are also parsing through mixed signals from Fed speak overnight. Chicago Fed President Charles Evans told CNBC the central bank could wait until year-end before making a decision on increasing interest rates. Boston Fed President Eric Rosengren sounded more hawkish, saying that low interest rates meant policy would be "less capable of offsetting negative shocks." Rosengren is not a voting member of the FOMC.

The Bank of Japan's minutes for its June meeting reflected that the central bank said the level of government bonds it purchases could fluctuate but this was unlikely to affect guidance, Reuters said. The minutes also showed the BOJ remained cautious on the 2 percent inflation target.

Major indexes on Wall Street closed lower as energy stocks were pressured by the fall in oil.

— CNBC's Saheli Roy Choudhury contributed to this report.