Asian stock markets claw back some early losses, Middle East crisis remains major concern
- Asian stock markets face the wrath of renewed Middle East tensions, but have recovered a majority of their early losses.
- Iran’s IRGC warns of a more decisive response against the US if it attacks again.
- Investors await the US PCE inflation data for April.
Stock markets in Asia have recovered a majority of their early losses, but are still significantly down as the exchange of attacks between the United States (US) and Iran has escalated the Middle East crisis.
As of writing, Nikkei 225 is down almost 1% to near 64,600, Hang Seng plunges 1.3% to near 25,000, and KOSPI tumbles 0.55% to near 8,185. Meanwhile, Indian stock markets are closed on Thursday due to Bakri Id. Still, Gift Nifty futures are facing the heat of renewed Middle East tensions, trading over 1% down to near 23,650.
Earlier in the day, Iran’s Islamic Revolutionary Guard Corps (IRGC) reported that it attacked US military bases and threatened 'a more decisive' response if repeated. The IRGC added that these military attacks were in retaliation to US attacks near Bandar Abbas airport.
This was the second attack by the US of the week, following the so-called “defensive strikes” by the Central Command on Iranian boats deploying mines.
Renewed Middle East tensions have lifted oil prices during the day. The WTI Oil price trades 1.7% higher to near $89.85. Higher oil prices is an unfavorable scenario for the stock markets in Asia, given their heavy reliance on oil imports to meet their energy needs.
Going forward, investors will focus on the US Personal Consumption Expenditure Price Index (PCE) data for April, which will be published at 12:30 GMT. Investors will pay close attention to the US inflation data to get fresh cues regarding the Federal Reserve’s (Fed) monetary policy outlook.
Asian stocks FAQs
Asia contributes around 70% of global economic growth and hosts several key stock market indices. Among the region’s developed economies, the Japanese Nikkei – which represents 225 companies on the Tokyo stock exchange – and the South Korean Kospi stand out. China has three important indices: the Hong Kong Hang Seng, the Shanghai Composite and the Shenzhen Composite. As a big emerging economy, Indian equities are also catching the attention of investors, who increasingly invest in companies in the Sensex and Nifty indices.
Asia’s main economies are different, and each has specific sectors to pay attention to. Technology companies dominate in indices in Japan, South Korea, and increasingly, China. Financial services are leading stock markets such as Hong Kong or Singapore, considered key hubs for the sector. Manufacturing is also big in China and Japan, with a strong focus on automobile production or electronics. The growing middle class in countries like China and India is also giving more and more prominence to companies focused on retail and e-commerce.
Many different factors drive Asian stock market indices, but the main factor behind their performance is the aggregate results of the component companies revealed in their quarterly and annual earnings reports. The economic fundamentals of each country, as well as their central bank decisions or their government’s fiscal policies, are also important factors. More broadly, political stability, technological progress or the rule of law can also impact equity markets. The performance of US equity indices is also a factor as, more often than not, Asian markets take the lead from Wall Street stocks overnight. Finally, the broader risk sentiment in markets also plays a role as equities are considered a risky investment compared to other investment options such as fixed-income securities.
Investing in equities is risky by itself, but investing in Asian stocks comes along with region-specific risks to be taken into account. Asian countries have a wide range of political systems, from full democracies to dictatorships, so their political stability, transparency, rule of law or corporate governance requirements may diverge considerably. Geopolitical events such as trade disputes or territorial conflicts can lead to volatility in stock markets, as can natural disasters. Moreover, currency fluctuations can also have an impact on the valuation of Asian stock markets. This is particularly true in export-oriented economies, which tend to suffer from a stronger currency and benefit from a weaker one as their products become cheaper abroad.
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