The Asian stock market experienced a decline on Monday, following the drop in US stocks, as investors dealt with increasing tension caused by Iran's unprecedented attack on Israel over the weekend.
Stock markets in Japan, South Korea, and Australia all saw a decrease, while futures for Hong Kong stocks also experienced a drop. During Asian trading, contracts for US stocks slightly increased, following the S&P 500's largest decline since January on Friday due to a shift towards safer investments.
Investors are already concerned about persistent inflation and the potential for prolonged high interest rates. The current escalation of the Middle East conflict has the potential to introduce new unpredictability into the market.
With the ongoing conflict, it is predicted that the price of oil may exceed $100 per barrel, leading to a trend of investing in Treasuries, gold, and the dollar. This may also result in additional losses in the stock market.
In early Asian trading on Monday, a majority of the Group-of-10 currencies showed signs of strengthening against the US dollar, while Treasury yields stabilized following a decline in the previous session. Demand for safe-haven assets drove an increase in gold prices, while aluminum experienced a significant surge of over 6% due to US sanctions on Russian trading.
According to Hebe Chen, an analyst at IG Markets, the recent increase in tension has brought about more negative uncertainties for the financial industry to process.
The financial and tech sectors may experience the deepest pain — higher energy prices are likely to darken the shadow on the inflation trajectory, resulting in higher rates for a longer period.
Hebe Chen, an analyst at IG Markets
In the Asian market, the financial and technology sectors may face significant difficulties due to the rise in energy costs, which could further worsen the impact on inflation and lead to prolonged periods of higher interest rates.
Chinese stocks in Asia are expected to face a challenging week due to the recent disappointing trade data released on Friday. Even if the overall global risk sentiment improves and tensions in the Middle East decrease, Chinese equities may still encounter their own obstacles to overcome.
In other news, China Vanke Co., a developer, has announced its intentions to address issues concerning liquidity pressure and short-term operational challenges. This comes as China's top leaders have expressed growing concern over the prolonged real estate crisis and its impact on the sluggish economy.
Anxiety caused by war
According to Iran, the issue could be considered resolved, but traders are currently anticipating the possibility of the conflict escalating into a larger regional war. However, concerns may be alleviated after a report revealed that President Joe Biden assured Israeli Prime Minister Benjamin Netanyahu that the US will not back an Israeli retaliation against Iran.
Namik Immelback, the chief strategist at Skandinaviska Enskilda Banken AB, said the current situation between Iran and Israel could potentially result in a decrease in market activity.
In the short term, this may lead to a decrease in positions taken by quantitative strategies that follow trends, which could further amplify the usual trend of seeking safer investments. However, over time, the tension between the two countries may subside and the market may return to its normal state.
Following the attacks on Saturday, Bitcoin experienced a surge after plummeting nearly 9%. While stock markets in Saudi Arabia and Qatar recorded minor losses amid low trading activity on Sunday, Israel's equity benchmark fluctuated between gains and losses at least nine times before ultimately ending with a slight increase.
Despite the attacks by Iran, the oil market was not significantly affected, as there is speculation that the conflict will not escalate. Brent crude has already increased by approximately 20% in the current year and is currently trading at approximately $90 per barrel.
As the International Monetary Fund and World Bank hold their spring meetings in Washington, traders will turn their attention to upcoming economic data. This includes Chinese growth data and inflation readings from Japan, the Eurozone, and the UK, which will play a role in shaping expectations for central bank easing policies.