Asian Markets Feel Chill as Middle East Tensions Heat Up

By Fabiana Negrin Ochoa

Asian stock markets were mostly lower after Iran launched a barrage of missiles at Israel overnight, as investors watched to see how the Middle East conflict develops.

Sentiment was also weighed by losses on Wall Street on Tuesday, but Asian markets were supported by hopes that the Iran-Israel conflict would have minimal impact.

"From Asia's perspective, the main transmission mechanism from geopolitical tensions is through oil prices," Michael Wan, senior currency analyst at MUFG Bank, said in a research report. He added that Asia's direct trade linkages with the Middle East are modest, though India is more exposed in terms of export demand from the Middle East.

The Japanese stock market led the losers in the region, with the Nikkei Stock Average falling about 1.9% on Wednesday, while headline stock indexes in South Korea, Malaysia, Thailand and Indonesia lost less than 1% and rose slightly in Singapore. Markets in China and India were closed for holidays.

The dollar picked up on the Middle East tensions. "Gold, bonds, and oil have reacted more while the equity, FX responses appear milder," OCBC strategists Frances Cheung and Christopher Wong said in a note.

"It is probably prudent to monitor further if there is excessive complacency in markets," the OCBC strategists added, and cautioned that a widespread conflict involving more parties could fuel risk-aversion flows that would benefit the likes of the dollar, the Swiss franc, the yen and gold.

Spot gold remained near record-high levels, though it was last down 0.3% at $2,653.94 per ounce.

In crude oil markets, front-month WTI was up 1.6% at $70.96 per barrel, while front-month Brent rose 1.1% to $74.64 per barrel.

Hong Kong's stock market returned from its holiday on Tuesday and powered 6% higher, buoyed by Beijing's aggressive measures to help the economy.

Property developers made strong gains after home-buying restrictions in China's top-tier cities were eased, sending the Hang Seng Mainland Properties Index up 15%.

Aside from the Middle East, another potential source of supply shocks could come from port worker strikes in the U.S., said MUFG Bank's Wan.

"While importers have likely adjusted to some extent by front-loading and re-routing some shipments, if sustained, this could have a knock-on impact to the US economy and inflation, and perhaps make the Fed's job somewhat harder," he said.

Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com

(END) Dow Jones Newswires

October 02, 2024 01:40 ET (05:40 GMT)

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