Kospi Down 3%, Nikkei Down 2.8%, Hang Seng Bleeding — The Asian Stock Market’s Brutal Monday

Tokyo’s Monday morning started off like most recent Mondays have: with a tone that is halfway between dejected and subtly tense. Above a financial district that has experienced better months, the Tokyo Tower is illuminated against the early sky. Before the opening bell had finished echoing, screens in trading rooms throughout the city’s Marunouchi district were already flashing red. The Nikkei 225 in Japan dropped 2.79%, losing 1,487 points to close at 51,885. It was the type of session that makes many people pause and double-check their numbers, but it doesn’t exactly cause panic.

As the Iran conflict entered its fifth week with no realistic resolution in sight, the entire Asian stock market complex suffered on Monday. The most striking story came from the Korean Kospi, which fell more than 5% early in the session before partially recovering to close down 2.97% at 5,277.3. The Kosdaq, which tracks smaller-cap firms, also saw a 3% decline. South Korea’s technology and export-driven economy is especially vulnerable to energy costs and unpredictability in global demand. Due in part to their heavy reliance on oil imports and their exposure to global semiconductor supply chains that are experiencing the same inflationary pinch, there is a perception that Korean markets have been bearing more than their fair share of the financial consequences of the war.
India was also not exempt. The BSE Sensex lost more than 1,600 points, while the Nifty 50 fell 2.14% to 22,331. The Reserve Bank of India has reportedly been closely monitoring currency movements as oil prices drive up import costs, and the rupee has been under pressure, with the USD/INR close to 94.72. Approximately 85% of India’s crude oil is imported, a structural vulnerability that makes every dollar gained on Brent crude a headache for New Delhi’s policymakers. According to reports, the Indian government is starting to evaluate the conflict’s growth risks. This cautious, measured language is seen as a warning sign in the financial community.

The Bank of Japan angle is what distinguishes the current Asian market selloff from earlier geopolitical corrections. The BOJ appears to be heading in the opposite direction while the majority of central banks worldwide are attempting to determine when to lower interest rates. Rate increases may need to be accelerated, according to policymakers discussing their March meeting summary that was made public on Monday. This is due in part to the fact that rising oil prices are exacerbating domestic inflation pressures in Japan and in part because the yen, which is currently trading at about 159 per dollar, is causing its own import cost spiral. A member of the BOJ made a clear warning about the danger of lagging behind the inflation curve. That is not a comfortable language for a central bank. An already challenging environment is made more complex by the unusual and somewhat unsettling combination of a rate-hiking BOJ and a declining stock market.
The Hang Seng in Hong Kong closed at 24,750, down 0.81%. Malaysia’s benchmark dropped 1.45%, while Taiwan’s weighted index dropped 1.8%. The S&P/ASX 200 in Australia fell 0.65% to 8,461. For its part, the Australian government took a subtly important action on Monday: Speaking in Canberra, Prime Minister Anthony Albanese declared that Australia would cut its fuel excise on gasoline and diesel in half for a period of three months. This is a clear admission that the energy cost shock caused by the Hormuz disruption is real and affecting regular households. Pump prices are predicted to drop by roughly 26 Australian cents per litre as a result of the cut. It’s a policy response that shows how seriously the Persian Gulf crisis is being taken by regional governments.
Mainland China was the only significant exception to the Monday selloff. Stronger-than-expected industrial profit data showing 15.2 percent growth in the first two months of the year helped the Shanghai Composite rise 0.24% to 3,923.29. The CSI 300 saw a slight 0.24% decline, but it stood in stark contrast to the wider regional collapse. China’s distinct energy sourcing arrangements and the fact that it has been able to obtain some oil through routes less impacted by the Hormuz closure may be the reasons for its relative insulation. It’s also possible that this resilience is short-lived and that Shanghai will eventually experience a persistent disruption in the world energy markets with the same certainty as Seoul and Tokyo.
Observing the entire Asian stock market this week, it seems as though the region is bearing the consequences of something it did not cause. Oil prices react locally when wars start far away, whether it’s at the pump in Sydney, in Mumbai’s household energy bills, or in Taipei’s manufacturers’ raw material costs. The yen’s decline, the rupee’s decline, and the won’s pressure are all telling the same tale about what happens when a vital international energy route goes silent. Asian traders have taken careful note of the diplomatic meetings in Islamabad. However, noted does not equate to believed, and the markets are currently trading on what they observe rather than what they anticipate.