Asia in deep red: oil surge and Middle East weigh on stocks

Leading the declines was Japan’s Nikkei 225, which ended the session around 51,937 points, down about 6.6%, marking one of its worst performances in recent months. Heavy selling was also recorded in South Korea, where the Kospi fell about 7%, closing near 5,147 points. Losses were more contained, though still significant, in Chinese markets. Hong Kong’s Hang Seng dropped between 2% and 3%, while the Shanghai Composite limited its decline to around 1.5%, showing greater resilience compared with other regional markets.

The sharp pullback in Asian equities was mainly driven by the strong increase in oil prices, which climbed above 110 dollars per barrel following the escalation of geopolitical tensions in the Middle East. The jump in crude prices has heightened investor concerns over a new energy shock, with potential repercussions for global inflation and economic growth.

Rising energy costs are particularly burdensome for Asian economies that rely heavily on imported raw materials, such as Japan and South Korea, increasing the risk of deteriorating corporate margins and weaker consumer spending.

Market sentiment has also been weighed down by growing concerns about the outlook for global monetary policy. Persistently high inflationary pressures linked to energy prices could push major central banks to maintain a restrictive stance for longer than previously expected.

In this environment, investors have reduced their exposure to riskier assets, favouring instruments considered safer. This “risk-off” move has therefore hit Asian equity markets particularly hard, as they tend to be more sensitive to global trade dynamics and fluctuations in commodity prices.

Andrea Pelucchi