Asian equities recovered ground on Thursday as U.S. Treasury yields eased and investors appeared briefly more willing to take on risk after intense market moves tied to the expanding war in the Middle East. The rebound was led by South Korea's KOSPI, which recouped steep losses from the previous session and outperformed regional peers.
MSCI's broadest index of Asia-Pacific shares outside Japan climbed 2.9%, reflecting a wide-based uplift across the region. South Korea's KOSPI surged 10.4%, making it the strongest performer among major Asian benchmarks, while Japan's Nikkei also rallied 2.9%.
Market participants pointed to a combination of factors that helped push sentiment higher, including strength on Wall Street and reports suggesting there may be interest from both the United States and Iran in finding an exit from open hostilities. Nevertheless, traders and strategists cautioned that geopolitical risk remains volatile and could quickly reverse gains.
"Geopolitical risk can flare up again very quickly, so any early gains we see this morning across Asia-Pacific region share markets may not last," said Paco Chow, dealing manager at Moomoo Australia and New Zealand. He added that investors will remain cautious until oil flows return to normal.
U.S. Treasury market moves were consistent with a tentative pick-up in risk appetite. The yield on the benchmark 10-year note rose 2.7 basis points to 4.109%, while the 30-year yield increased 3.1 basis points to 4.7479%.
Despite today's recovery in equities, the war-related episode showed no clear path to a rapid resolution. The conflict widened sharply on Wednesday after a U.S. submarine sank an Iranian warship and NATO air defences intercepted and destroyed an Iranian ballistic missile fired towards Turkey. The U.S. Senate backed President Donald Trump's military campaign against Iran, a development that suggested the dispute could remain unresolved for some time and continued to influence markets, transportation networks, and energy production.
There were also developments that provided some relief to investors. European and U.S. equity markets drew modest comfort from a presidential pledge to provide protection to shippers and a report indicating that Iranian intelligence had reached out to the CIA early in the conflict about a potential path to ending it. Iran later rejected that report, and in Washington the Republican-led Senate voted to block a bipartisan resolution that sought to stop the air campaign.
Energy markets remained sensitive to supply concerns. U.S. crude oil rose 3.01% to $76.91 a barrel, while Brent climbed 2.49% to $83.43 per barrel. Spot gold also firmed, up 0.84% to $5,178.42 an ounce, reflecting continued demand for traditional safe-haven assets amid geopolitical uncertainty.
"The market continues to trade on headlines, and we’re likely to see further volatility ahead," said Henry Russell, a London-based economist for ANZ. He noted that energy supply constraints were still in evidence, with production facilities going offline and the prospect of additional shutdowns if the conflict were to persist.
China's policy signals added another dimension to market moves. Beijing set its economic growth target for 2026 at a range of 4.5% to 5%, a modest step down from the roughly 5% pace achieved last year. The slightly lower target provides policymakers some latitude to address industrial overcapacity and pursue a rebalancing of the economy. In tandem, China unveiled its 15th five-year plan, which emphasised investments in innovation and high-tech industries and pledged a "notable" lift in household consumption.
Domestic Chinese markets responded positively to those policy announcements. The CSI300, a blue-chip gauge, rose nearly 1% in early trading, and the Shanghai Composite added 0.4%.
On the currency front, the dollar paused after recent safe-haven-driven gains. The dollar index, which tracks the greenback against a basket of currencies, was flat at 98.81. The Japanese yen strengthened 0.2% to 156.75 per dollar.
Cryptocurrency markets showed modest weakness alongside the broader risk-on move in equities. Bitcoin slipped 0.78% to $72,774.53, while ether fell 0.94% to $2,130.43.
Summary: Regional stocks advanced as yields eased and hopes of a diplomatic off-ramp from the Middle East conflict lifted risk sentiment, though oil, gold, and other safe-haven assets remained elevated amid ongoing supply concerns. China set a slightly lower growth target and outlined its five-year plan, supporting modest gains in local markets.