Investors seeking to buy or sell Asian stocks following any spike in oil prices should aim to execute orders in the first few minutes of the trading day and then steer clear, according to UBS AG.
That’s the finding of a study into how six regional equity markets performed in the first week of March as the outbreak of the Iran war reverberated across financial assets. Turnover was concentrated at the start of trading, after which execution quality deteriorated, based on the analysis by the bank’s electronic trading desk.
“Volatility was overwhelmingly front‑loaded at the market open, and intraday volume curves reverted toward historical averages after the open in general,” the note said. “No market exhibited sustained intraday volume expansion beyond the open.”
The study gives an insight into how equity trading in Asia has been transformed since the start of the Middle-East conflict on Feb. 28. Not only is market direction increasingly dependent on headlines, but moves are becoming outsized, and the direction of stocks has seen an increasing number of intraday reversals.
UBS found the most pronounced case of front-loaded trading in South Korea, where the Kospi 200 Index saw trading volumes at the open jump to as much as 2.2 times the six-month average. Trading then dropped off significantly, though there was some intermittent volatility around lunchtime.
“The Kospi shows an extremely concentrated response,” the note said. “Almost all meaningful trading related to the Brent shock occurs at the very start.”
Investors should try to restrict their trading to the first five minutes, and avoid any re-entry or midday positioning, according to the note.
Similarly, investors should seek to trade stocks in Japan’s Nikkei 225 Stock Average during the first 10 to 15 minutes of the session, and Australia’s benchmark in the first 15 to 25 minutes. For Chinese equities, there is a key window around the open from 9:25 a.m. to 9:40 a.m., the note said.
Despite the recent reports of possible peace talks, markets are likely to remain volatile unless there’s a real resolution, the UBS note said.
Though the market has started to see some prospects of potential de-escalation, “energy prices and financial markets may be subjected to volatilities until they see a full stabilization,” it said.
