Asian equities declined Monday as escalating geopolitical tensions in the Gulf drove oil prices sharply higher, prompting a broad risk-off shift across markets. The renewed conflict weighed heavily on semiconductor-linked stocks and pushed bond yields upward as investors reassessed inflation and monetary policy expectations.
Oil Surge on Strait of Hormuz Uncertainty
Brent crude jumped 4.1% to $79.11 a barrel, while US crude rose to $74.37, as Iran announced the closure of the Strait of Hormuz. US officials countered that approximately 20 vessels had been escorted through the waterway in the past 24 hours, though ship-tracking data indicated minimal traffic. The uncertainty, rather than a confirmed shutdown, was enough to rattle markets.
The oil spike revived concerns about global inflation, with higher energy costs potentially complicating central bank policy. Two-year Treasury yields climbed to their highest level since early 2025, and the dollar index held firm near 101.13. Gold weakened as rising yields diminished its appeal.
Chip-Heavy Markets Hit Hardest
South Korea's KOSPI fell 5.4%, extending last week's nearly 8% decline, as leveraged semiconductor bets unwound. The index has become a key barometer for AI-chip sentiment due to the outsized influence of Samsung Electronics and SK Hynix. Despite SK Hynix's successful $26.5 billion ADR listing on the Nasdaq, where its shares surged nearly 14% on Friday, selling pressure persisted in Seoul.
Investors are questioning whether the AI rally has outpaced earnings and cash generation. Bank of America analysts warned that the AI capex boom is eroding free cash flow at hyperscalers, even as chip suppliers benefit from demand. Citi analysts remain positive on global technology and US equities but acknowledge that AI-related volatility may stay elevated. For related analysis, see Magnificent 7 Stocks Hit Decade-Low Valuation Premium Over S&P 500.
Broader Market Impact
S&P 500 futures fell 0.4% and Nasdaq futures lost 0.9%, while European futures also moved lower. The dollar strengthened against the euro, reflecting Europe's greater reliance on imported energy. Against the yen, the dollar rose to about 162.03, partially reversing Friday's move after Japan's finance minister suggested encouraging pension funds, including GPIF, to hold more domestic assets. NAB economists view any shift in GPIF allocations as potentially yen-supportive, though changes are likely gradual.
Investors now await US inflation data for June, due Tuesday, and Fed Chair Kevin Warsh's first congressional testimony in his new role. Markets are debating whether higher oil prices could force the Fed to maintain a hawkish stance. For context on recent market moves, see Nasdaq Futures Jump 190 Points as Oil Retreats and Chip Stocks Rebound.
Outlook
The combination of geopolitical risk, rising energy costs, and uncertainty over AI-driven earnings has created a volatile environment for equities, particularly in Asia. Bond markets are pricing in higher inflation expectations, while currency markets adjust to shifting energy dynamics. The coming days will be critical as economic data and central bank commentary provide further direction.
This article is for informational purposes only and does not constitute financial advice.
