KOSPI drops 6% as Asian equities slide on UAE-Iran tensions

Asian markets opened sharply lower Wednesday as the UAE's trade halt with Iran and fresh diplomatic ruptures compounded an already elevated risk backdrop.

Asian equities tumbled Wednesday as the UAE halted all trade with Iran, sending South Korea's KOSPI down 6 percent and triggering a circuit breaker.

"The UAE has formally halted all trade, commercial and financial transactions with Iran," Afra Al Hameli, Director of Strategic Communications at the UAE Ministry of Foreign Affairs, said. Iran's foreign ministry rejected the underlying missile allegations as unfounded, pointing to what it called false flag operations attributed to the US and Israel.

The KOSPI opened down 5 percent and widened to 6 percent within minutes, suspending program-driven selling for five minutes through the exchange's sidecar mechanism. Samsung Electronics and SK Hynix each fell around 7 percent. Japan's Nikkei 225 dropped more than 3 percent, with Tokyo Electron down 4 percent and Kioxia down 9 percent. Chinese equities also opened lower, tracking Wall Street's overnight decline.

Oil extended gains into a fourth consecutive session, with Brent crude at $91.07 a barrel and West Texas Intermediate at $84.99, as uncertainty over the operational status of the Strait of Hormuz persists. France added to the diplomatic strain, announcing it will expel two Iranian diplomats after two French embassy staff in Tehran were detained in July.

Analysts described the UAE's trade suspension as a significant blow to Iran given the scale of Dubai's role in Iranian import markets and its function as a financial channel. The move follows the UAE's earlier allegation that Iran launched missiles against the country, an accusation Tehran has firmly rejected.

Oil Extends Rally as Hormuz Uncertainty Persists

Oil prices have now risen for four consecutive sessions, with Brent reaching its highest level since late July. Saudi Aramco has resumed operations using ship-to-ship transfers to ensure supply continuity, while Yemen's Houthis have continued targeting vessels in the Red Sea, adding to regional volatility. The Strait of Hormuz handles roughly a fifth of global oil consumption, and any sustained closure would ripple through energy markets and inflation expectations across major economies.

Economic Data Points to Recovery in Japan

Japan's core machinery orders, which exclude volatile items such as ships and electric utilities, jumped 9.7 percent month-on-month in June, reversing a 12.4 percent drop the prior month and beating forecasts for a 7.8 percent rise. On an annual basis, orders rose 16.9 percent, swinging from a 1.9 percent decline in May and topping estimates for a 10.8 percent gain — the fastest annual rise in four months, pointing to a broad-based recovery in business investment.

In Australia, wages grew 0.8 percent in the June quarter, matching expectations, with the annual pace holding at 3.2 percent. Reserve Bank of Australia Deputy Governor Andrew Hauser reiterated that inflation remains too high and that monetary policy needs to continue reducing demand in the economy, adding that further rate hikes remain possible if inflation fails to ease. He noted the Board is not forecasting a recession, only a slowdown, while flagging upside inflation risks as an ongoing concern.

Elsewhere, the Trump administration agreed to delay planned 50 percent tariffs on Canadian goods by three days following high-stakes talks in Washington. Canadian Prime Minister Mark Carney said substantial progress had been made, though important work remains. The Canadian dollar gained a few points on the news.

Beijing is allowing small shipments of Nvidia's H200 chips to reach leading Chinese technology firms, with ByteDance and Tencent each receiving around 10,000 processors in recent weeks, according to the Financial Times, as China eases restrictions to help its companies compete in the AI race. Scheduled joint US and South Korean military drills are expected to be cut by roughly half following an order from President Trump to substantially reduce US participation in the annual exercises.

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