KUALA LUMPUR: A senior JP Morgan analyst says China and Malaysia stand out in Asia as markets that have some buffer from oil shocks due to their relative low reliance on oil imports.
Commenting in a CNBC broadcast interview on which Asian markets looked the most vulnerable to the impact of oil supply shocks, Rajiv Batra, who overseas equity strategy for Asia and emerging markets, noted that beyond China and Malaysia, "everyone else looked vulnerable".
"Malaysia clearly has some amount of buffer, coming from their net energy exports, plus a fiscal deficit that is well under control due to government policy and inflation that is not significantly high," he said.
"They have buffers in place that will not just support equity as an asset class but their currency as well."
Meanwhile, Rajiv added that only 5% of China's electricity production is dependent on imported energy, with the remainder sourced from domestic production.
"They have a strategic buffer of close to 1.7 billion barrels of oil available as well as alternative sources of energy in the form of renewables."
He added that China can also revert to coal usage for electricity consumption.
As for the other countries in Asia, Rajiv said it remains to be seen how they navigate conditions - perhaps at the risk of sacrificing economic or fiscal growth.
Rajiv is head of Asia and co-head of global emerging markets equity strategy and chief Indian and Asean equity strategist at JP Morgan.
In the same interview, he noted that if the war in the Middle East is prolonged then end-demand destruction - a situation in which oil prices become unaffordable, leading to a decline in demand - has to be allowed to happen.
"You let prices go as high as possible and demand destruction kicks in, which leads to the decline or normalisation of prices. We have not reached that stage yet but looking at past experiences such as the 1970 oil supply shock, that has been the usual course where oil prices come down," he said.
Rajiv projects that if oil prices hover around US$100 a barrel in the second quarter and US$80 a barrel in the second half of the year there will be a 60-basis-point hit to global GDP growth.
He added the projection of the price of oil and gas averaging US$80 a barrel in the second half is owing not just to assumptions of a protracted war but the time needed to restore oil and gas supply due to infrastructure damage and the lag time in oil being imported and refined into end-products.
