Asian markets deep in the red, Kospi loses more than 6%

Asia in the red: broad sell-off across major markets

Asian stock markets closed sharply lower, marking one of the worst sessions in recent weeks. A strong risk-off sentiment hit all major markets across the region, with significant losses in both developed and emerging indices. Driving the move was a combination of macroeconomic and geopolitical factors that pushed investors to reduce exposure to risk assets. International tensions, coupled with rising energy prices and their impact on inflation expectations, triggered a wave of selling that spared no sector. Cyclical and interest-rate-sensitive sectors, such as technology and industry, were particularly affected, while the weakness of Asian currencies further increased pressure on local markets.

Major Asian indices: sharply lower closes

Here are the closing figures for the region’s main indices:

1. Nikkei 225 (Tokyo): 51,515.49 points (-3.48%)
2. Hang Seng (Hong Kong): 24,382.47 points (-3.54%)
3. Shanghai Composite (China): 3,813.28 points (-3.63%)
4. Kospi (Seoul): 5,405.75 points (-6.49%)

The picture shows a generalized decline, with the South Korean market posting the worst performance of the day. The Kospi’s losses of more than 6% reflect the country’s particular vulnerability to external shocks, especially in terms of energy and international trade. Tokyo and Hong Kong also ended the session with losses exceeding 3%, while Shanghai, despite declining, showed relative resilience compared to other regional markets.

Middle East escalation: the main risk driver

The dominant driver of the session was the worsening geopolitical scenario in the Middle East. Rising tensions among the United States, Iran, and Israel have reignited fears of a large-scale conflict, with potential repercussions for the global economic system. At the center of concerns is the Strait of Hormuz, a strategic chokepoint through which about one-fifth of global oil supplies transit. Threats of blockades or attacks on energy infrastructure triggered an immediate market reaction, with a spike in crude prices and a flight to safe-haven assets. In this context, investors rapidly reduced exposure to Asian equities, seen as particularly vulnerable to potential disruptions in energy supplies.

Rising oil and inflation fears

The sharp increase in oil prices represents one of the main transmission channels of the geopolitical shock to financial markets. Brent crude moved above $112 per barrel, fueling fears of a new global inflationary cycle.

A prolonged rise in energy costs could compress corporate margins and reduce consumers’ purchasing power, with negative effects on economic growth. For Asian economies - many of which are heavily dependent on energy imports - the impact is particularly significant. Countries such as Japan and South Korea are among the most exposed to a potential supply shock, partly explaining the stronger selling pressure on their respective markets.

South Korea under pressure: Kospi plunges

The South Korean market was the hardest hit of the day, with the Kospi down more than 6%. The decline reflects a combination of factors, including the weakness of the local currency - falling to its lowest level in over a decade - and the country’s strong exposure to global trade. The technology sector was particularly affected, with widespread selling among major semiconductor companies. These firms, highly sensitive to global demand dynamics and financial conditions, tend to suffer in environments of rising rates and slowing growth. Elevated volatility also prompted market authorities to closely monitor the situation, with containment mechanisms activated to limit excessive movements.

Technology and rates: the double impact on markets

Beyond the geopolitical factor, markets also faced a less favorable financial environment. Rising bond yields, particularly in the United States, reduced the appeal of equities—especially high-growth stocks.

Treasury yields remained at elevated levels, reflecting expectations of tighter monetary policy for longer. This scenario particularly penalizes the technology sector, whose valuations rely heavily on future earnings.

As a result, selling concentrated on growth stocks and cyclical sectors, amplifying the decline in equity indices.

China more resilient, but still negative

Amid an overall negative session, China showed relative resilience. The Shanghai Composite closed lower, but with more limited losses compared to other Asian markets. This dynamic can partly be explained by lower energy dependence compared to other countries in the region and a stronger presence of domestic investors, who tend to stabilize the market during periods of global turbulence. However, sentiment in China remains fragile, with investors closely monitoring international developments and their potential implications for economic growth.

Currencies and safe havens: strong dollar

The climate of uncertainty supported a stronger dollar, traditionally considered a safe-haven asset during turbulent periods. By contrast, Asian currencies came under downward pressure, reflecting capital outflows and heightened risk perception. This movement further worsened conditions for local markets, increasing import costs and contributing to deteriorating inflation prospects. Gold, while still a defensive asset, showed a more complex dynamic, weighed down by higher real interest rates.

In this environment, volatility is expected to remain elevated, with Asian markets continuing to serve as a key barometer for shifts in global sentiment. Overall, the session stands as a clear example of how geopolitical and economic factors can intertwine, generating sharp and synchronized movements across international financial markets.

Andrea Pelucchi