Asian equity markets suffered steep losses on Wednesday as a rise in geopolitical tension between the U.S. and Iran prompted a broad risk-off rotation. South Korea was the most severely impacted market in the region, where the KOSPI dropped as much as 11% and trade in South Korean stocks was halted following the plunge.
The fall in Korean equities reflected both renewed risk aversion linked to the Middle East situation and a wave of profit-taking after a period of notable gains earlier in the year. Major technology and automotive names that make up large weights on the index contributed heavily to the sell-off, reversing recent strength.
Global benchmark futures tracked a weak lead from Wall Street, where equities declined on Tuesday as the U.S.-Iran conflict showed little sign of de-escalation. S&P 500 futures fell nearly 0.4% by 21:53 ET (02:53 GMT), reinforcing the risk-off sentiment that spread across Asian markets.
South Korea: concentrated selling in chips and autos
The KOSPI's collapse was driven in part by extended profit-taking across major chipmakers and automakers. Samsung Electronics Co Ltd (KS:005930), SK Hynix Inc (KS:000660), and Hyundai Motor (KS:005380) ranked among the largest drags on the index as investors rotated out of higher-beta technology exposures and cyclicals.
Samsung was particularly affected after a report suggested the company will delay mass production at its forthcoming Texas chip facility to 2027 from an earlier 2026 target. Broader technology stocks in South Korea - which had benefited from optimism around artificial intelligence over the previous two months - also fell sharply, undoing gains that pushed the KOSPI to record highs last week. The index was trading about 16% below that recent peak.
China: PMIs deliver mixed messages, prompting concern over domestic demand
Chinese markets also slid, with the Shanghai-Shenzhen CSI 300 and the Shanghai Composite each falling more than 1%, while Hong Kong's Hang Seng index dropped nearly 3% as locally-listed Chinese technology shares softened.
The weakness followed a mixed set of purchasing managers index prints for February. Official data indicated continued contraction in both manufacturing and services activity, reflecting weak local consumption that strong export demand failed to offset. By contrast, private PMI data from RatingDog showed both manufacturing and services expanding in February at a pace above expectations.
Analysts noted the divergence between the two PMI measures largely reflects the different firm coverage: the official survey leans toward larger state-run enterprises concentrated in the north, while the private gauge captures export-oriented private firms in the south. "Overall, the mixed bag of manufacturing PMI data suggests a similar trajectory to what we observed in 2025: resilient external demand continuing to drive growth, while domestic demand has been disappointingly soft," ING analysts said.
The disparity in the data underlines calls for greater economic support from Beijing, with China's upcoming "two sessions" of high-level policy meetings expected to put domestic stimulus high on the agenda for lawmakers, according to local reporting.
Australia: strong GDP not enough to offset inflation concerns
Australian equities fell despite the economy posting stronger-than-expected growth in the fourth quarter. The ASX 200 dropped 2.1% after gross domestic product rose 2.7% to a three-year high in Q4, driven by steady consumer spending, government investment, and improved supply-side output.
Markets interpreted the robust GDP reading as a potential signal of stickier inflation rather than an unalloyed positive, heightening the prospect of further monetary tightening. The Reserve Bank of Australia raised rates by 25 basis points in February on concerns about inflation, and Governor Michele Bullock warned earlier in the week that the RBA could potentially raise interest rates again at its March meeting.
Regional knock-on effects and sectoral impacts
Other Asian markets broadly retreated. Japan's Nikkei 225 and TOPIX each fell more than 4%, pressured by declines in technology and industrial stocks and influenced by profit-taking after several recent record highs. Singapore's Straits Times index slid 2.3%, while futures for India's Nifty 50 were down about 0.6%.
Energy markets added another layer of concern. Rising oil prices contributed to market anxiety because supply disruptions tied to the U.S.-Iran hostilities could push energy costs higher. Several major Asian economies are net importers of crude, and analysts warned that supply interruptions or sustained price increases could disrupt growth prospects, particularly if the conflict endures. "Financial markets continued to remain worried about the risk of prolonged disruption to global energy supply amid Middle East escalation and its stagflationary implications," OCBC analysts said.
Outlook and market mood
The prevailing tone across Asian markets on Wednesday was risk aversion, with investors trimming exposures to cyclical and technology sectors while watching for policy signals that might influence economic momentum. In China, attention will remain fixed on the forthcoming policy sessions for indications of fiscal or monetary easing. In Australia and elsewhere, central bank guidance on the inflation outlook will be closely parsed for implications on future rate moves.
For now, the combination of geopolitical risk, mixed growth signals from China, and the prospect of persistent inflation has pushed markets toward safer assets, leaving regional equity indices noticeably lower and market participants vigilant for any further developments that could exacerbate volatility.