Asian markets plunged on Friday as global sentiment remained volatile amid expectations of a ceasefire, coupled with the unpredictability of the leaders involved.
Investors are facing a familiar combination of high oil prices and the concern that higher energy costs could bleed into inflation.
In Asia, the mood was less about local fundamentals and more about a broader repricing of risk across the region.
The developments came after Wall Street had a volatile session yesterday, with the S&P 500 falling 1.74% and the Nasdaq plunging over 2%.
Oil shock returns
The selloff in Asia was led by South Korea, where the blue-chip Kospi dropped 3.6% and the small-cap Kosdaq fell 2%.
Japan was also sharply lower by 1.6%, while losses in Australia, Hong Kong and mainland China were comparatively milder.
The immediate trigger was not a sudden deterioration in Asian data, but a renewed surge in concern over energy supply.
Investors are again thinking through what a prolonged disruption in and around the Strait of Hormuz would mean for import-dependent economies across the region.
Barclays said a sustained closure of the waterway could disrupt 13 million to 14 million barrels a day of oil supply.
That matters especially in Asia, where the cost of energy quickly feeds into everything from transport and factory input bills to consumer inflation and bond yields.
South Korea, Japan face major brunt
The steepest losses in Northeast Asia were telling.
South Korea’s outsized decline suggested investors were moving quickly out of the sectors which are most sensitive to external shocks.
The equities in the country are especially vulnerable to oil and gas supply risks because of the country’s heavy dependence on imported energy.
Seoul has responded with emergency measures, including a 5 trillion won bond buyback and wider fuel tax breaks.
The same logic applies in Japan as Nikkei 225 fell 1.6% and the broader Topix lost 0.8%.
The concern is not only the direct effect of higher fuel costs, but the second-round impact, including pricier shipping, tighter financial conditions, softer overseas demand etc.
China offers resilience
China provided the day’s main counterpoint.
Official data showed industrial profits at Chinese firms rose 15.2% in January and February from a year earlier.
That helped explain why losses in Hong Kong and mainland China were relatively contained, with the Hang Seng down 0.2% and the CSI 300 off 0.4%.
But China’s story was not strong enough to lift regional sentiment.
The higher energy and component costs could still threaten the durability of the earnings rebound if oil remains elevated.
That is the balance investors were trying to strike on Friday.
China’s domestic industrial momentum offered a degree of reassurance, but investors are still assessing the damage a prolonged oil shock could do to growth.
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