A wave of acute risk aversion swept through Asian financial markets at Friday’s open, sending stock indices tumbling across the region.
The sharp downturn was a direct consequence of escalating geopolitical tensions in the Middle East, following reports that Israel had conducted a military strike on Iran, specifically targeting its nuclear program.
This dramatic development sent oil prices soaring and investors scrambling for safety.
The market mood soured dramatically as news emerged of Israel’s military action.
Two US officials confirmed to NBC News that the Israeli military had begun airstrikes against Iran, adding that there was no US involvement in the operation.
Following the attack, Israel’s defense minister announced a ‘special situation’.
Defense Minister Israel Katz stated, “Following the State of Israel’s preemptive strike against Iran, a missile and drone attack against the State of Israel and its civilian population is expected in the immediate future.”
This stark warning of potential retaliation further amplified fears of a wider regional conflict.
The impact on Asian equities was immediate and severe. Japan’s benchmark Nikkei 225 fell 1.33%, while the broader Topix index lost 1.26%.
South Korea’s Kospi was 1.17% lower, and the small-cap Kosdaq experienced a sharper decline of 2.97%. Australia’s S&P/ASX 200 also lost ground, down 0.23%.
In Greater China, Hong Kong’s Hang Seng index fell 0.98%, while mainland China’s CSI 300 shed 0.78%.
Oil skyrockets, Indian markets brace for impact
The most dramatic market reaction was seen in oil prices, which jumped by more than 10%.
US West Texas Intermediate crude rose 10.21% to $74.99 per barrel, while global benchmark Brent surged 10.28% to $76.48 per barrel, reflecting acute concerns about potential supply disruptions from the volatile region.
Indian markets were also bracing for a significant hit. In pre-open trade, the BSE Sensex was reported to have tanked by over 1,200 points, with the Nifty slipping below the 24,500 mark.
This sharp downturn came as Israel’s strike on Iran’s capital sent shockwaves through Tehran and reignited fears surrounding the region’s precarious nuclear standoff.
Market analysts emphasized the sudden re-emergence of geopolitical risk as a primary market driver.
“The market has largely been shrugging off geopolitical risk for the last year, and these development have been a wakeup call that these risks are more tangible and imminent than many expect,” Saul Kavonic, head of energy research at MST Marquee, told CNBC via email.
However, Kavonic also suggested a potential, albeit uncertain, path to de-escalation: “It is possible these attacks could be calibrated to add pressure on US Iran negotiations and the situation subsequently de-escalate.”
US markets: previous gains overshadowed by new tensions
The escalating Middle East tensions quickly overshadowed any lingering optimism from the previous US trading session.
US stock futures slid sharply on Thursday night as the situation worsened.
This followed a day where US producer prices for May had come in cooler than expected, rising just 0.1% from the previous month against an anticipated 0.2% jump.
This softer reading, along with a cooler-than-expected consumer inflation report earlier in the week, had initially boosted major US stock indexes and led to a decline in bond yields, improving investor sentiment.
Overnight in the US on Thursday, all three key benchmarks had closed higher.
The S&P 500 rose, partly helped by a rally in Oracle that lifted the broader tech sector.
The benchmark index climbed 0.38% to close at 6,045.26, positioning it less than 2% off its record high.
The Nasdaq Composite gained 0.24% to end at 19,662.48, and the Dow Jones Industrial Average added 101.85 points, or 0.24%, settling at 42,967.62.
However, these gains appeared fragile in the face of the new geopolitical crisis unfolding.
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