Asia report: Most markets fall on fresh fighting in Hormuz

(Sharecast News) - Asia-Pacific markets fell on Thursday as tensions in the Middle East escalated after fresh US strikes in Iran raised concerns over regional stability and potential supply disruption near the Strait of Hormuz.

"Markets have flipped back into risk-off mode as renewed violence in the Middle East punctures hopes for a quick diplomatic resolution," said Patrick Munnelly, market strategy partner at TickMill.

"The MSCI All Country World Index slipped 0.4% from its recent record, while Asian equities fell 2%, ending a five-day winning streak that had been powered by peace optimism and the AI-led tech rally."

A US official told MS NOW on Wednesday that American forces had carried out new strikes targeting a military site believed to threaten US troops and commercial shipping in the Strait of Hormuz.

Kuwait activated its air defences on Thursday in response to what it described as "hostile missile and drone threats," according to a post by the country's armed forces on X.

In a statement carried by Iran's state-affiliated Tasnim news agency, the Islamic Revolutionary Guard Corps said it had struck a US air base after a US attack near Bandar Abbas airport.

Oil prices rose on the renewed tensions, with Brent crude futures last up 2.25% on ICE at $96.41 per barrel, and the NYMEX quote for West Texas Intermediate gaining 2.17% to $90.60.

"Oil is the main transmission channel," Munnelly said.

"Brent jumped almost 3.7% to around $98 per barrel after US airstrikes on an Iranian military site and fresh sanctions aimed at limiting Iran's profits from Strait of Hormuz shipping."

Munnelly said Washington had framed the strikes as defensive, but Iran's retaliation against a US airbase had "reduced confidence that negotiations are close to delivering a durable ceasefire".

"Trump's dissatisfaction with the talks, and his warning that no single country will dominate the Strait, underscore why the conflict has dragged into its fourth month," he added.

"The market's problem is not only the level of oil but also the volatility - each reversal makes it harder for investors and central banks to treat the shock as temporary."

Stock markets mixed across Asia

Japan's Nikkei 225 fell 0.47% to 64,693.12, while the broader Topix declined 0.41% to 3,902.01.

Furukawa Electric dropped 7.32%, Sumitomo Metal Mining lost 7.26%, and Fuji Electric fell 7.11%.

In China, the Shanghai Composite edged up 0.12% to 4,098.64, while the Shenzhen Component rose 0.8% to 15,861.89.

Zhejiang HangKe Technology jumped 19.99%, Beijing Worldia Diamond Tools gained 10.62%, and Jiangsu Jiangnan High Polymer Fiber added 10.2%.

Hong Kong's Hang Seng Index fell 1.27% to 25,006.16.

Hansoh Pharmaceutical Group dropped 7.1%, Meituan lost 5.66%, and China Hongqiao Group declined 5.39%.

South Korea's Kospi 100 slipped 0.41% to 10,093.77.

Hanmi Semiconductor fell 8.31%, Hanwha Ocean lost 7.93%, and HD Hyundai Marine Solution declined 6.22%.

The Bank of Korea kept its benchmark interest rate unchanged at 2.5%, as expected, but a hawkish split signalled a shift toward a more restrictive stance as policymakers seek to curb inflation and support a weaker won.

Five of the seven monetary policy board members voted to hold rates, while two backed a 25-basis-point increase.

New governor Shin Hyun Song said the direction of policy was clear, adding: "Looking at prices, growth, FX rates, as well as real estate, the steps we should be taking going forward is clear. The question is when, how quickly to raise them, and how far."

The central bank's dot plot showed a bias toward lifting rates to 3% over the next six months, with seven dots at 2.75% and two pointing to 3.25%.

The BOK raised its inflation forecast for this year to 2.7% from 2.2%, reflecting the impact of higher oil prices since the start of the Iran war, and lifted its growth forecast to 2.6% from 2.0% after first-quarter GDP expanded 1.7%, the fastest pace in nearly six years.

South Korea's three-year treasury bond futures turned sharply lower after the statement and dot plot were released.

"The cross-asset response is consistent with stagflation risk," Munnelly said.

"The dollar strengthened as a safe haven, especially given its historical support during Middle East stress.

"Treasuries sold off as the inflation impulse from higher oil outweighed the usual flight-to-quality bid, pushing the 10-year yield up 4 basis points to 4.53%."

Munnelly said equities were being squeezed from both sides, with earnings sentiment still supported by AI and resilient demand, but higher energy and higher yields threatening margins and valuations.

"Fed communication is adding to that pressure," he said.

"Vice chair Philip Jefferson still expects inflation to ease later this year as tariff and energy effects fade, but he acknowledged that risks remain skewed to the upside.

"Governor Lisa Cook was more direct, saying inflation is moving in the wrong direction and that she would support raising rates if the trend persists.

"That is the key point for markets: even if the Fed's base case is still that the oil and tariff impulse fades, officials are becoming less willing to look through repeated price shocks without evidence that inflation expectations remain anchored," Munnelly added.

Sydney, Wellington close in the green

Turning down under, Australia's S&P/ASX 200 fell 1.43% to 8,592.90.

Genesis Minerals dropped 10.16%, AP Eagers lost 9.71%, and Perseus Mining declined 9.67%.

New Zealand's S&P/NZX 50 slipped 0.16% to 13,206.11.

Investore Property fell 4.29%, Serko lost 4.18%, and SkyCity Entertainment Group declined 3.92%.

The New Zealand government said in its 2026 budget that it would increase defence spending by 9%, with NZD 3.5bn in new funding over the next four years.

Finance minister Nicola Willis said the country faced its "most adverse" security environment in eight decades, with the funding to support the extension of Anzac-class frigates, new drones and improved security and intelligence services.

Defence spending would account for 1.23% of GDP in the coming year.

The budget also included nearly NZD 1bn to respond to the global fuel crisis caused by the Middle East war, which Willis said had halted New Zealand's expected economic recovery.

A NZD 150m strategic fuel reserve had been established, with a further NZD 450m earmarked for temporary support if supplies worsened.

Eligible families would receive a NZD 50 weekly tax credit for up to a year.

Treasury warned that more severe shocks from the Middle East conflict or other sources could have lasting effects on productive capacity and the fiscal outlook.

Dollar mixed against regional peers

In currencies, the dollar fell 0.04% against the yen to JPY 159.45, rose 0.34% on the Aussie to AUD 1.4051, and gained 0.25% against the Kiwi to NZD 1.6987.

"The market is again being forced to confront the uncomfortable mix of stronger oil, firmer inflation risk and less dovish central-bank rhetoric," Munnelly said

"AI can still support the equity story, and manufacturers may still be looking through the conflict, but the soft-landing trade is more vulnerable when Treasuries sell off on negative geopolitical news."

Reporting by Josh White for Sharecast.com.