Asian Market Rout Gets Worse as Mideast Crisis Pushes Oil Higher

Asian stocks were hit again on Wednesday on concerns that a war between Israel and the United States against Iran would fuel inflation and destabilize the global economy.

South Korean markets were again hit the hardest, with the Kospi index plunging more than 12% as investors sold off technology positions in local chip giants built in recent months on the artificial intelligence boom.

The sell-off came on the fifth day of attacks on the Islamic Republic and saw oil prices rise further as observers warned that supply blockades in the Middle East could fuel inflation and dash hopes for further interest rate cuts.

See also: Iran war could hit some of Asia’s biggest economies hard

U.S. President Donald Trump has pledged that the Navy will escort oil tankers through the Strait of Hormuz – through which about a fifth of the world’s oil supplies flow – if needed and ordered Washington to provide insurance for shipping.

On Wednesday, Iran’s Revolutionary Guards said passage through the strait was “under the complete control of the Islamic Republic’s navy.”

Iran’s attacks on several neighbors threaten to expand the conflict, while uncertainty over how long the war will last added upward pressure on crude prices, with both major contracts rising about 3% on Wednesday.

Oil prices rise

Prices for the two main contracts, Brent and West Texas Intermediate, have surged about 15% since before the attacks began on Friday. Brent crude hit a high above $85 on Tuesday, while WTI peaked near $88. Some analysts warn that its price could soon reach $100.

The Seoul Composite Stock Price Index has hit record highs since the beginning of the year, driven by a boom in artificial intelligence technology, but is now in trouble.

Both the index and the Kosdaq suspended trading after falling more than 8%, then extended losses when business resumed.

The Kospi plunged more than 12% after falling more than 7% on Tuesday as panic selling emerged.

That sent the index into its worst two-day slump since the 2008 global financial crisis. The nearly 50% gain from the year to Friday has more than halved. It rose 76% last year.

Chip giants Samsung and SK Hynix, which have led the surge in share prices in Seoul this year, fell 11.7% and 9.6% respectively.

A headache for central banks

“Asian stocks are now down for a third day in a row, and there’s no mystery why,” wrote Stephen Innes of SPI Asset Management.

“When crude oil prices edge higher, Asia’s imported energy is not just an item but a structural dependence.

“Export-driven economies suddenly find themselves recalculating profits, with a more expensive barrel sitting quietly behind every factory floor and waterway.”

Chung Hae-chang, an analyst at Daishin Securities, added: “As South Korea, Japan, China and Taiwan rely heavily on energy shipments through the strait, any blockade would have a significant negative impact on the market.”

Nikkei down 3%, SET down 8%

Japan’s Nikkei 225 index closed down more than 3%, and chipmakers Advantest and Tokyo Electron fell more than 4%.

Elsewhere in Asia, Taipei’s stock market fell more than 4% and Bangkok’s Stock Exchange of Thailand fell 8%, also triggering a trading halt.

Hong Kong, Sydney, Singapore, Shanghai, Wellington, Mumbai, Manila and Jakarta also fell into negative territory.

The sell-off followed sharp losses in Europe, with London down 2.8% but Frankfurt and Paris both down more than 3% as gas prices surged to levels not seen since Russia invaded Ukraine.

The prospect of soaring energy costs dampens hopes for further rate cuts from the central bank as officials already worry that inflation remains stubbornly high.

Analysts said the Federal Reserve, the European Central Bank and Asian central banks may hold off on cutting interest rates, but the Bank of England and central banks in parts of Latin America and central Europe may be forced to raise rates.

The dollar extended its recent gains amid bets on fewer, or perhaps even no, rate cuts and its safe-haven status.

Key data around 0700 GMT

SEOUL – KOSPI: Down 12.1% to 5,093.54 (close)

TOKYO – Nikkei 225: down 3.6% to 54,245.54 (close)

Hong Kong Hang Seng Index: down 2.5% to 25,113.88

Shanghai – Composite Index: down 1.0% to 4,082.47 (close)

West Texas Intermediate crude oil: up 2.6% to $76.46 a barrel

North Sea Brent crude: up 2.9% to $83.73 a barrel

EUR/USD: Down from $1.1617 to $1.1610 on Tuesday

GBP/USD: Down from $1.3358 to $1.3333

USD/JPY: fell from 157.59 yen to 157.43 yen

NEW YORK – Dow: down 0.8% to 48,501.27 (close)

London – FTSE 100: down 2.8% to 10,484.13 (close)

• Further editing by Jim Pollard, AFP

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd newspapers in Sydney, Perth, London and Melbourne before traveling to South East Asia in the late 1990s. He served as a senior editor at The Nation for more than 17 years.