Asian stocks plummet as investors shift to safe-haven fleet amid US-Iran war

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Asian stock markets plunge sharply at the start of the week.

Asian equity markets have fallen like a house of cards amid the brutal war between the US and Iran.
The oil price surges to its over seven-month high amid heightened Middle East tensions.
US President Trump is open to talks with Iran’s interim leader, Ayatollah Alireza Arafi.

Asian stock markets plunge sharply at the start of the week. Equity markets across Asia are facing the heat of brutal war between the United States (US) and Iran, which started over the weekend, in which many Iranian top leaders, including Tehran’s top leader Ayatollah Ali Khamenei, have been killed.

As of writing, Nikkei 225 is down 1.5% to near 58,000, Hang Seng dives 2.5% near 26,000, and Shanghai drops 0.13% to near 4,157. Meanwhile, Indian bourses are expected to open negatively. Gift Nifty futures indicate that Nifty50 will open 125 points lower to near 25,160.

Trump told Fox News that their military has killed 48 Iranian leaders in the first two days of bombing, and claimed in a post on Truth.Social that the naval headquarters was destroyed, and nine Iranian warships had been sunk.

In retaliation, Tehran has struck several Middle East countries and various US military bases across the region.

The brutal war between the nations has increased the safe-haven demand of precious metals, and a significant upside move in the oil price. WTI futures on NYMEX are up 4% to near $70, as of writing, the highest level seen in over seven months.

Higher oil price is an unfavorable situation for currencies and stock markets in Asia, given that they rely heavily on oil imports to meet their energy needs.

Meanwhile, the latest comments from US President Donald Trump have shown that he is open to talks with Tehran’s new leadership, which has been passed to Ayatollah Alireza Arafi.

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Which are the main stock market indices in Asia?

Asia contributes around 70% of global economic growth and hosts several key stock market indices. Among the region’s developed economies, the Japanese Nikkei – which represents 225 companies on the Tokyo stock exchange – and the South Korean Kospi stand out. China has three important indices: the Hong Kong Hang Seng, the Shanghai Composite and the Shenzhen Composite. As a big emerging economy, Indian equities are also catching the attention of investors, who increasingly invest in companies in the Sensex and Nifty indices.

What are the main sectors represented in Asian stock markets?

Asia’s main economies are different, and each has specific sectors to pay attention to. Technology companies dominate in indices in Japan, South Korea, and increasingly, China. Financial services are leading stock markets such as Hong Kong or Singapore, considered key hubs for the sector. Manufacturing is also big in China and Japan, with a strong focus on automobile production or electronics. The growing middle class in countries like China and India is also giving more and more prominence to companies focused on retail and e-commerce.

What factors drive Asian stock markets?

Many different factors drive Asian stock market indices, but the main factor behind their performance is the aggregate results of the component companies revealed in their quarterly and annual earnings reports. The economic fundamentals of each country, as well as their central bank decisions or their government’s fiscal policies, are also important factors. More broadly, political stability, technological progress or the rule of law can also impact equity markets. The performance of US equity indices is also a factor as, more often than not, Asian markets take the lead from Wall Street stocks overnight. Finally, the broader risk sentiment in markets also plays a role as equities are considered a risky investment compared to other investment options such as fixed-income securities.

What are the risks of investing in Asia stock markets?

Investing in equities is risky by itself, but investing in Asian stocks comes along with region-specific risks to be taken into account. Asian countries have a wide range of political systems, from full democracies to dictatorships, so their political stability, transparency, rule of law or corporate governance requirements may diverge considerably. Geopolitical events such as trade disputes or territorial conflicts can lead to volatility in stock markets, as can natural disasters. Moreover, currency fluctuations can also have an impact on the valuation of Asian stock markets. This is particularly true in export-oriented economies, which tend to suffer from a stronger currency and benefit from a weaker one as their products become cheaper abroad.