Asian stock markets slide amid escalating Middle East tensions
South Korea's Kospi Index was impacted worst Monday, declining by more than 6%
Rowan Dunne
Asian stock indexes plunged on Monday as fresh threats between the Americans and Iran sent investors running for shelter.
South Korea’s KOSPI KRXKOSPI suffered the biggest hit. It dropped 6.5 per cent, or 375 points, to close at 5,405.75. The nation’s smaller Kosdaq index fell 5.6 per cent and triggered a brief trading halt.
Japan’s Nikkei 225 INDEXNIKKEINI225 and Hong Kong’s Hang Seng Index INDEX:HSI both lost 3.5 per cent. Furthermore, the Shanghai Composite Total Return Index SHA000888 fell by 3.6 per cent, the CSI 300 Index SHA000300 dropped by 3.3 per cent and Taiwan’s TAIEX TPEIX0001 declined by 2.5 per cent.
The sell-off started right after President Donald Trump issued a 48-hour ultimatum to Iran on the weekend. He said the United States would destroy Iran’s power plants unless Tehran reopened the Strait of Hormuz immediately.
Iran answered by threatening to close the vital waterway for good and attack energy facilities across allied Arab states in the Gulf. The strait normally carries one-fifth of the world’s oil. Fighting that began in late February has already choked off most tanker traffic and oil prices have been swinging wildly.
Brent crude oil rose as high as US$113 a barrel before pulling back, but it is still sitting far above levels seen before the conflict. Higher fuel costs now threaten to drive up inflation and food prices worldwide because fertilizer shipments have also slowed.
Analysts warn that a longer standoff could push oil toward US$150 a barrel. Central banks may then raise interest rates instead of cutting them, which is detrimental to stocks.
This development coincides with gold tumbling by more than 8 per cent on Monday as investors sold the metal to buy assets that pay interest when rates climb.
Market watchers from Goldman Sachs Group Inc NYSEGS along with fund managers at Federated Hermes Inc NYSEFHI and AMP Ltd OTCMKTSAMLTF FRAAMP have called the current economic situation serious. They said the conflict, now in its fourth week, looks worse than the oil shocks of the 1970s.
“It is time for caution, not panic,” said one strategist from Federated Hermes on Bloomberg TV, but he also added that the longer the fighting drags on the greater the damage will be.
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