Asia-Pacific stocks sink 1.5% as US-Iran clashes fuel risk-off trade

Renewed military clashes between the United States and Iran sent Asian equities tumbling on Thursday, with the Nikkei 225 leading losses as investors fled to safe-haven assets.

The MSCI Asia-Pacific ex-Japan index dropped 1.5% on Thursday as renewed US-Iran military clashes drove a broad risk-off move across regional equity markets. Japan's Nikkei 225 led the decline, while S&P 500 e-mini futures slipped 0.5% in Asian afternoon trading.

"The resumption of hostilities between the US and Iran has shattered the fragile ceasefire hopes that had supported risk assets in recent weeks," said Hiroshi Nakamura, chief Asia equity strategist at Nomura Holdings in Tokyo. "Until there is clarity on whether this is a temporary escalation or a sustained campaign, investors will remain defensive."

The selloff extended a volatile week for global markets. On Wednesday, India's Sensex closed 304 points lower at 74,346 and the Nifty 50 settled above 23,400 after falling more than 1% intraday, with IT stocks such as Tata Consultancy Services and Infosys dropping 4% to 8%. The Nifty IT index declined nearly 5%, while the Nifty Realty index slumped more than 2% ahead of the Reserve Bank of India's monetary policy decision on June 5. India's volatility index surged more than 6%.

Oil prices eased from session highs after Israel and Lebanon moved toward implementing a ceasefire, with Brent crude retreating toward $95 a barrel after briefly touching $97. US West Texas Intermediate traded near $93. The pullback in crude provided some relief to Asian importers, though prices remain elevated enough to pressure inflation-sensitive sectors.

Cross-asset spillover

The dollar strengthened against Asian currencies as the risk-off mood took hold. The Japanese yen edged toward 157 per dollar, while the Indian rupee weakened to 95.68 per dollar, pulling away from multiweek highs. Foreign portfolio investors were net sellers of more than $800 million of Indian equities on Tuesday, according to exchange data.

US Treasury yields edged lower as investors sought the safety of government debt, with the 10-year yield falling 3 basis points to 4.32%. Gold held near $2,350 an ounce, supported by haven demand.

The renewed US-Iran hostilities follow a period of relative calm after a tentative ceasefire was announced last month. The US launched targeted attacks at Iran's Qeshm Islands, while Tehran struck US bases in Kuwait and Bahrain, according to reports. The escalation has dimmed hopes for an extension of the ceasefire and raised the prospect of sustained conflict that could keep oil prices elevated and weigh on corporate earnings across Asia.

The renewed conflict threatens to derail what had been a tentative recovery in Asian equities, with the MSCI Asia-Pacific index now down more than 3% from its May high. Traders are watching for any escalation over the coming days that could push oil prices above $100 a barrel, a level that would intensify inflationary pressures across the region and complicate central bank policy decisions.

This article is for informational purposes only and does not constitute investment advice.