Escalating military conflict between the US and Iran has triggered a sharp surge in global market risk aversion, leading to widespread declines across Asian stock markets on Thursday.
Following the US Central Command's announcement of a new round of "self-defense strikes" against Iran late Wednesday, oil prices rose nearly 2%, with WTI crude futures trading around $92 per barrel.
In response, South Korea's benchmark KOSPI index plunged over 4% at one point during early trading, while Japan's Nikkei 225 index fell more than 2%, dragging the broader Asia-Pacific region into a risk-off mode. By the close of the morning session, both the Nikkei 225 and the Topix index were down approximately 1.5%, with the KOSPI's losses narrowing to around 1.17%.
Concurrently, US stock futures also declined during Wednesday's overnight session. S&P 500 futures fell 0.4%, Nasdaq 100 futures dropped 0.6%, and Dow Jones Industrial Average futures were down about 123 points, or 0.3%.
Heightened Conflict Risk as US Conducts Further Strikes on Iran
According to reports, the US Central Command stated that its forces began conducting what it termed "self-defense strikes" against multiple targets inside Iran starting at 5:15 PM ET on June 10. Iranian state media reported that Iran had launched missile and drone attacks against US ships in the Strait of Hormuz.
Prior to this, former President Trump issued a stern warning regarding the situation, stating that Iran had "dragged its feet too long" on reaching a potential agreement and would "pay a price," threatening that the US would "launch fierce strikes" against it. This rhetoric further destabilized an already fragile US-Iran ceasefire agreement, intensifying market fears of a total loss of control in the Middle East situation.
Asia-Pacific Markets Under Pressure, South Korean Shares Lead Declines
Asia-Pacific markets opened to broad-based selling pressure on Thursday, with South Korean markets showing the most significant declines. The KOSPI index fell as much as 4.1% early in the session, while the small-cap KOSDAQ index dropped 2.8%.
In Japan, the Nikkei 225 index's losses widened to 2.3% at one point, with the Topix index down 1.9%. Australia's S&P/ASX 200 index fell approximately 0.97%. Hong Kong's Hang Seng Index futures were quoted at 24,307 points, below Wednesday's closing level of 24,407.96.
As trading continued, losses in some markets moderated. By the morning close, both the Nikkei 225 and Topix indices were down about 1.5%, while the KOSPI index briefly turned positive before falling again, with its latest decline around 1.4%.
Ahead of the Asia-Pacific market open, US stocks had already suffered heavy losses during Wednesday's regular trading session. The Dow Jones Industrial Average plunged 953.33 points, or 1.87%; the S&P 500 index fell 1.62%; and the tech-heavy Nasdaq Composite index dropped 1.98%, with the chip sector once again leading the decline. Software giant Oracle Corporation (NYSE: ORCL) saw its after-hours shares fall over 11% after the company announced plans to raise an additional $20 billion through a stock offering and debt issuance to fund artificial intelligence infrastructure.
Accelerating Sector Rotation as Investors Seek Tech Hedges
In the face of market turbulence, some investors have begun actively adjusting their portfolio allocations. Victoria Fernandez, Chief Market Strategist at Crossmark Global Investments, noted that a growing number of investors are looking for ways to hedge their technology trades.
"I think people are asking, where can we go to hedge the tech trade? What is the opposite of momentum and beta?" she said. "We are seeing money rotate out of tech and into areas that have seen some pullback over the last few months." Fernandez added that her clients are allocating more capital to pharmaceuticals and biotech within healthcare, as well as to the financial and energy sectors.
While geopolitical risks continue to simmer, investors on Thursday will also closely monitor US economic data. The US Producer Price Index (PPI) for May is scheduled for release, with economists surveyed by Dow Jones expecting a 0.7% month-over-month increase and a 0.5% rise for core PPI excluding food and energy, both lower than the 1.4% and 1.0% gains seen in April. Additionally, initial jobless claims data for the week ending June 6 will be released Thursday morning, providing investors with an assessment of the latest conditions in the US labor market.
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