Asian stock markets plunge due to US tech rally halt, KOSPI triggers circuit breaker

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Asian stock markets face a massive sell-off at the start of the week due to multiple tailwinds.

Asian equity markets nosedive due to halt in US tech rally, higher US Dollar and oil prices.
KOSPI triggers circuit breaker in early trade as chipmaker stocks slid over 10%.
The exchange of attacks between Israel and Iran has boosted oil prices.

Asian stock markets face a massive sell-off at the start of the week due to multiple tailwinds. Signs of a halt in United States (US) tech stocks’ rally, higher oil prices due to Iran’s retaliatory attacks against Israel, and rising US Dollar (USD), following strong Nonfarm Payrolls (NFP) data for May have forced traders to offload their stake in the equity markets of the largest continent.

As of writing, Nikkei 225 is down 3.55% to near 64,200 even after a slight recovery move. KOSPI nosedives 4.5% to near 7,800. The South Korean index plunged over 8% after a weak opening, which triggered a 20-minute trading halt. Chipmakers Samsung and SK Hynix fell by over 10% in the opening trade, leading to a massive fall in the index. Both Shanghai and Hang Seng slumped by almost 0.8%.

Meanwhile, Indian equity markets are expected to open on a negative note, with Gift Nifty furtures trading almost 300 points down to near 23,160.

US technology stocks suffered a massive sell-off on Friday, sliding 5% due to surprisingly strong domestic employment data, which resulted in a strong rally in the US Dollar and Treasury Yields.

The compounding effect of upbeat official employment data and already high inflationary pressures has resulted in a significant surge in hawkish Federal Reserve (Fed) bets. According to the CME FedWatch tool, the odds of the Fed delivering at least one interest rate hike this year have increased to 74.4% from 45.2% seen a week ago.

On the geopolitical front, renewed conflicts in the Middle East between Israel and Iran have prompted oil prices, a scenario that is unfavorable for stock markets from Asian economies, given that they rely heavily on oil imports to meet their energy needs.

Asian stocks FAQs

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.