Asian stock markets registered marked losses on Monday as investors pared back risk exposure in response to a weekend of military strikes involving the United States and Israel against Iran. The attacks lifted crude prices, heightened fears about supply disruptions in the Middle East and prompted flows into safe-haven assets.
Regional equities had a weak starting point after U.S. stocks closed lower on Friday amid unresolved questions over artificial intelligence and the direction of interest rates. ESH26 fell 0.6% by 20:58 ET (01:58 GMT), trimming some of its earlier losses.
Across Asia, Hong Kong's Hang Seng index posted one of the steepest declines, dropping 2.4%, while Japan's Nikkei 225 slipped 1.6% as technology shares came under pressure. Japan's TOPIX also fell 1.6%.
Mainland Chinese benchmarks moved lower as well, with the Shanghai Shenzhen CSI 300 down 0.6% and the Shanghai Composite off 0.5%. Markets elsewhere in the region were similarly weaker: Australia's ASX 200 declined 0.5%, Singapore's Straits Times index lost 1.8%, and futures for India's Nifty 50 slid 0.8%.
The weekend strikes on Iran were reported to have killed hundreds, including Supreme Leader Ayatollah Khamenei and several other top officials. Iran responded by launching strikes across multiple Middle Eastern countries and on U.S. bases in the region. The situation continued to show few signs of abating, with leaders in the United States and Israel signaling further attacks and Tehran vowing harsh retaliation amid a leadership transition.
Markets reacted quickly to the heightened risk environment. Oil prices rose sharply on Monday amid concerns that the conflict could disrupt flows from the Middle East. For many Asian economies, which rely heavily on imported crude, higher oil costs represent an inflationary headwind and increase the potential for economic strain.
Beyond the immediate geopolitical shock, technology stocks weighed on regional performance. Investors remain uncertain about how developments in artificial intelligence will affect the sector. Software companies in particular had been recording deep losses in February as market participants fretted over intensifying competition from AI tools.
China also remained in focus ahead of its annual "two sessions" meetings of top political bodies, scheduled from March 4 to March 11. Those meetings are expected to set the agenda for the country's 15th Five-Year Plan. Authorities in Beijing are widely expected to outline further stimulus measures as Chinese economic growth has slowed steadily during the 2020s.
Macro data added to investor unease. Stronger-than-expected U.S. producer inflation figures released on Friday stoked fears that inflation in the world's largest economy could remain elevated, potentially keeping U.S. interest rates higher for longer. Regional rate expectations shifted as well: markets largely priced out additional short-term rate hikes by the Bank of Japan following weak inflation readings from Japan, while growing conviction built that the Reserve Bank of Australia will raise rates further in coming months to address a late-2025 resurgence in inflation.
The combination of geopolitical risk, higher oil prices, sector-specific weakness in technology and uncertainty around interest rate paths left Asian markets broadly lower as investors reassessed risk across asset classes and regions.
Market snapshot
- Hang Seng: -2.4%
- Nikkei 225: -1.6%
- TOPIX: -1.6%
- CSI 300: -0.6%
- Shanghai Composite: -0.5%
- ASX 200: -0.5%
- Straits Times: -1.8%
- Nifty 50 futures: -0.8%
- ESH26: -0.6% by 20:58 ET (01:58 GMT)
Context and outlook
Investors will be watching developments in the Middle East for signs that the conflict could widen or further disrupt oil supplies. The calendar ahead also includes China’s two sessions, which may produce policy signals that influence market sentiment, and additional economic data that could affect rate expectations for major central banks.