SINGAPORE, March 4 - Asian stock markets fell on Wednesday as investors unwound crowded positions in chipmakers and gold amid growing concern that a widening conflict in the Middle East could spark an energy shock, pushing inflation higher and delaying prospective rate cuts.
Seoul experienced one of the steepest declines, with the market plunging 4% on the day and extending two-day losses to more than 11% as fast-money traders and foreign investors exited a market that had surged on the outsized AI-related profits of memory chipmakers. The equity rout contributed to the South Korean won sliding to a 17-year low.
Japan's Nikkei index declined 2.5%, marking a third straight session of losses. Both Japan and South Korea are significant energy importers, leaving them vulnerable to disruptions in global energy supplies.
Global energy benchmarks reflected the market's worries. Brent crude futures were trading at $81.40 a barrel, up more than 12% for the week, although prices eased from intraday highs after U.S. President Donald Trump ordered an insurance guarantee for shipping in the Gulf and suggested the navy could escort oil tankers through the Strait of Hormuz if required.
The moves in oil followed a series of military actions and retaliatory strikes: U.S. and Israeli forces have carried out strikes on Iran for four days, while Iranian drones and missiles have targeted Gulf oil refineries and U.S. embassies in Saudi Arabia and Kuwait.
"It does look like conflict is going to go a little bit longer than what people thought initially. And there’s been escalation, because the war is now broadening out to include allies of the U.S.," said Damien Boey, portfolio strategist at Wilson Asset Management in Sydney. "Oil infrastructure seems to be under attack ... so people are having to think about what is the duration of all of that."
Precious metals and FX markets also moved sharply as traders rebalanced positions. Gold dropped roughly 4.5% overnight while the Australian dollar fell about 0.8% as investors cashed out profitable bets to meet losses elsewhere during a turbulent week. Early in the Asian session, gold steadied at $5,128 an ounce.
U.S. and European futures showed attempts at stabilization, with S&P 500 futures flat and European futures up 0.8%. On Wall Street, benchmarks pared larger declines but the S&P 500 still finished 0.8% lower on worries about potentially prolonged higher oil prices.
"The biggest issue that (investors) are trying to weigh gets back to the intertwining of inflation and interest rates," said Chuck Carlson, CEO at Horizon Investment Services in Hammond, Indiana. "Are energy prices going to remain elevated for a longer period of time than people thought yesterday, and then does that pass through?"
Currency moves reflected concern over regional energy exposure, with the euro sliding below $1.16 amid expectations that Europe will face significant impact from higher energy costs. Benchmark European gas prices surged about 65% over two days.
Key points
- Asian equities fell sharply as investors cut positions in gold and semiconductor stocks amid fears a wider Mideast conflict could trigger an energy-driven inflation spike.
- Seoul plunged 4% and extended two-day losses beyond 11%, while Japan's Nikkei dropped 2.5% for a third straight losing session; the won hit a 17-year low.
- Benchmark Brent crude rose to $81.40 a barrel, up more than 12% for the week; European gas prices jumped about 65% in two days.
Risks and uncertainties
- Further escalation in the Mideast could sustain higher oil prices, increasing inflationary pressures and affecting energy-importing economies such as Japan and South Korea.
- Attacks on oil infrastructure and continued strikes raise the prospect of supply disruptions that would impact energy markets and related sectors, including utilities and transportation.
- Persistent elevated energy costs could complicate central bank calculations on interest rates and the timing of potential rate cuts, influencing financial markets broadly.