Asian stock markets climbed on Monday, with investors shifting their focus back to fundamentals and the prospect of further negotiations, largely disregarding the renewed tensions in the Middle East over the weekend. The MSCI Asia Pacific Index rose as much as 0.8%, while the MSCI Emerging Markets Index recouped all losses incurred since the onset of the Iran conflict nearly two months ago. U.S. equity futures, which had dropped up to 1.1% earlier, pared their declines. Oil prices and the U.S. dollar also retreated from their intraday highs. Analysts and strategists indicated that the market movements suggest investors are betting that the "peak of uncertainty" has passed. Improved prospects for negotiations, a resurgence in artificial intelligence-related trading, and a renewed market focus on corporate fundamentals as the earnings season commences have collectively bolstered sentiment. Peak Uncertainty Behind Despite ongoing geopolitical tensions, markets are far from entering a full risk-off mode. Given that both the U.S. and Iran remain open to dialogue, investors see potential for a de-escalation of the situation. Matthew Haupt, Portfolio Manager at Wilson Asset Management, stated, "The market has priced in an eventual agreement and a return to normalcy regarding the Middle East situation. The reaction in equity futures is quite mature; everyone understands the likely endpoint, so there's a general willingness to look past the current volatility for now." Lack of Conviction Rapidly changing news flow has made it difficult for investors to establish high-conviction positions, with few willing to be caught on the wrong side of trades. Market positioning remains light, and trading volumes were subdued across most Asian markets on Monday. For instance, trading volume for South Korea's KOSPI index was approximately 33% below its one-month average. Conflicting statements from President Trump and Iranian officials regarding the next phase of the conflict have cast doubt on the prospects for peace talks ahead of a ceasefire deadline, further adding to the uncertainty. Shoji Hirakawa, Global Chief Strategist at Tokai Tokyo Intelligence Laboratory, commented, "The immediate focus is whether U.S.-Iran talks will materialize. It is unlikely Iran will ultimately cancel negotiations, so while investors may hesitate and adopt a wait-and-see approach, it's difficult for them to turn outright bearish." Shorting Becomes Challenging Some market observers noted that shorting has become more difficult as major Asian benchmark indices, such as Japan's Nikkei 225 and Taiwan's Weighted Index, rebound towards record highs. Since the start of the month, the proportion of short selling in Japanese stocks as a percentage of total daily trading volume has been declining. As of last Friday, the five-day moving average fell to around 38.8% from 41.8% on April 3rd. Hiroki Takei, Strategist at Resona Holdings, said, "From an index perspective, the Nikkei is particularly close to its all-time high. In terms of contribution, this rally has been almost entirely driven by the semiconductor sector. This implies there is still room for other sectors to catch up." Earnings and AI Driven by a rebound in chip stocks and the return of AI-themed trading to investor focus, South Korean shares rose more than 1% on Monday, recovering losses triggered by the Iran conflict. During the conflict, earnings from Asian tech companies have demonstrated resilience. TSMC raised its 2026 revenue forecast due to strong demand for AI chips, while Samsung Electronics saw quarterly profit surge eight-fold. South Korean memory chip maker SK Hynix, set to report earnings on Thursday, is viewed as a key catalyst for the tech sector. Billy Leung, Investment Strategist at Global X Management, stated, "We are at or have passed the peak of uncertainty. Asia is the most resilient market in peace-time trading. The structural thesis for the AI theme remains intact, and capital inflows into memory chips are accelerating."
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