Asian stocks decline on Trump's tariffs, US-Iran tension; South Korea's KOSPI underperform
- Asian stocks decline amid concerns about escalating US-Iran tensions and Trump’s new tariffs.
- Elevated oil prices fuel inflationary concerns and bolster bets for more hawkish central banks.
- The Trump administration imposed sweeping tariffs on 60 of the country’s top trading partners.
Asian stock markets fell across the board on Friday as intensifying US-Iran conflict and US President Donald Trump's new tariffs temper investors' appetite for riskier assets. Japan’s Nikkei N225 is down nearly 3% while South Korea's KOSPI declined over 4.5%, underperforming broader markets.
The US military announced that it has completed another round of strikes against Iran on Thursday, marking the 13th straight night of operations. The latest strikes come amid a widening regional confrontation, with Iran and its allies launching retaliatory strikes against US-linked military assets in Kuwait, Bahrain and Jordan.
Moreover, Iran-aligned Houthis extended the Middle East war to a second major shipping chokepoint and struck two Saudi oil tankers in the Red Sea. This exacerbates energy supply disruption concerns amid the closure of the Strait of Hormuz, lifting oil prices to a fresh high since June 11 on Thursday and fueling inflation fears.
Investors remain worried that a fresh inflation shock would force major central banks, including the US Federal Reserve (Fed), to adopt a more hawkish stance. According to the CME Group's FedWatch Tool, traders are currently pricing in around a 93% chance that the US central bank will raise borrowing costs by the end of this year.
Meanwhile, the Trump administration is set to impose sweeping new tariffs ranging from 10% to 12.5% on 60 of the top trading partners, covering nearly all of the country's imports and reigniting fears of a global trade war. This, in turn, is seen as another factor that contributes to a broadly weaker tone across global financial markets.
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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