Markets feel fallout over war fears

Global markets have gone into a spin as the drumbeats of war against Syria have got louder.

Global markets have gone into a spin as the drumbeats of war against Syria have got louder.

Japanese and Chinese equities have shed more than 1.5 per cent since Monday. Major currencies have got the wobbles.

The threat of a US missile attack on Syria has come at a time when the so-called emerging markets are already in turmoil. Economies in south-east Asia are struggling with serious capital outflows and currency weakness. India has reportedly been intervening to prop up its currency.

Analysts are saying that global markets are still likely to get more unsettled by things beyond Syria, such as the unresolved US debt-ceiling issue, the coming German election, and the US Federal Reserve's meeting in September.

But they admit they have been waiting for a broad-based sell-off in equity markets, and many are wondering if Syria could provide the trigger for a global flight to safety.

Fund managers say there has been an unrealistic expectation among investors - for the past six months - that growth assets were just going to keep growing, but those expectations have suddenly been tested by the Syrian tensions.

"Yesterday I probably would have said that [the US] wouldn't have got involved, but the rhetoric seems to be building up ... so it's a bit worrying for growth assets," Tyndall AM's Roger Bridges said.

"I think it will be contained and the markets have probably over-reacted to Syria, but is Syria the cause of this [sell-off] or was it building up in any case? Syria could have just been the catalyst for the reaction."

Australia's dollar was sold off more than half a cent on Wednesday as investors finally responded to the Middle East tensions.

The dollar was hit as global oil prices touched recent highs, with Brent oil touching $US117 a barrel and West Texas Intermediate hitting $US111.59, the highest since May 2011.

A US-based Credit Suisse analyst, Jan Stuart, said he believed Brent oil prices were rallying on the "likely prolonged absence of more than 1 million barrels per day of Libyan oil exports". "Whereas Syria has little production to lose, Libyan instability is causing an acute supply disruption," he said.

"Apparent 'labour disputes' [in Libya] ... could bring Libyan production down to as low as 200,000 barrels per day."

It was therefore unlikely that any US strikes on Syria would have a significant effect on the supply and demand of oil, Mr Stuart said, "for the simple fact that there are very few assets at risk".

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