Asian stocks slide as Iran conflict fuels oil and bond yield worries
The scale of the selloff across both Japan and South Korea points to a market treating the latest US Iran escalation as a genuine regime shift rather than a passing headline, with the move showing up simultaneously in equities, oil and sovereign bond yields. Analysts are attributing the pressure on growth and tech names specifically to the jump in bond yields, arguing that this particular yield rise reflects fiscal risk concerns rather than the kind of yield increase that typically accompanies healthy economic strength. In Japan, the added layer of rising BOJ rate hike expectations is compounding the pressure on JGB yields, creating a double headwind for equities from both global risk aversion and domestic policy tightening bets. The scale of foreign selling in Korea suggests overseas investors are treating this as a broad risk off rotation rather than a stock specific story, a dynamic likely to persist as long as the Iran conflict shows no sign of de-escalating.
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Earlier:
- BOJ hawk Takata says nimble rate hikes needed as inflation risks build
- Ueda signals more BOJ hikes ahead but flags cumulative rate risks
- Bank of Japan Governor Ueda says no comment on markets pricing a September rate hike
- Trump says he is in no rush for Iran talks, points to Hormuz control
- US strikes Iranian tankers for first time under new deterrence policy
- CENTCOM confirms hits Iranian air defence and naval sites after Hormuz mine attempt
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Asian markets are pricing in a longer, costlier Iran conflict, and bond yields are doing much of the talking.
Summary:
- Japan’s Nikkei fell circa 3% to around 64,250, while the broader Topix lost circa 2.4% to around 4,080, on course to snap a nine session rally
- Market participants said the selloff reflected broad based positioning ahead of the impact of rising oil prices
- Oil prices extended their prior session surge, rising roughly 1% in early trade as the US and Iran exchanged strikes overnight, denting hopes of a quick de-escalation
- SoftBank Group fell over 6%, while chip related names Tokyo Electron and Advantest fell circa 2.8% and around 4% respectively, with analysts citing rising bond yields as the main pressure on growth stocks
- Analysts said the current rise in yields is being read as a fiscal risk signal rather than a sign of economic strength
- Japan’s 10 year government bond yield rose to around 3%, its highest since 1996, while the two year yield rose to around 1.8%, its highest since 1995, on growing bets of faster BOJ rate hikes
- South Korean stocks fell more than 3% as the same escalation pushed up bond yields, with analysts pointing to heightened market sensitivity to oil prices and yields
- South Korea’s August consumer inflation accelerated on a low base effect from a year earlier but fell short of market expectations
- Samsung Electronics, SK Hynix and LG New Energy fell more than 3%, while Hyundai Motor and Kia fell more than 5%
- Foreign investors net sold around 890 billion won, roughly 650 million US dollars, worth of South Korean stocks
Japanese and South Korean equities fell sharply on Wednesday as renewed fighting between the United States and Iran pushed oil prices higher and drove bond yields to multi decade highs, with analysts pointing to the twin pressures of energy costs and rising yields as the key forces behind the selloff. Japan’s Nikkei dropped circa 3 percent to around 64,250, while the broader Topix lost circa 2.4 percent to around 4,080, putting the index on track to snap a nine session winning streak.
Market participants described the move as a broad based selloff rather than one concentrated in any single sector, with the market said to be bracing for the impact of higher oil prices following the latest escalation. Crude extended the prior session’s sharp gain, adding roughly 1 percent in early trade, as the overnight exchange of strikes between the US and Iran dimmed hopes for a swift easing of tensions in the region.
Technology and chip related names bore the brunt of the selling in Tokyo. SoftBank Group fell over 6 percent, while Tokyo Electron and Advantest lost circa 2.8 percent and around 4 percent respectively. Analysts attributed the pressure on these growth oriented shares specifically to the sharp rise in bond yields, with one market participant noting that yields typically rise alongside a strengthening economy, but that the latest move instead reflects growing unease about fiscal risk rather than healthy underlying sentiment. Japan’s 10 year government bond yield climbed to around 3 percent, its highest level since 1996, while the two year yield rose to around 1.8 percent, its highest since 1995, as traders raised bets on a faster pace of Bank of Japan rate hikes.
The selloff extended to South Korea, where stocks fell more than 3 percent as the same combination of rising bond yields and oil prices weighed on sentiment. The US carried out a large scale strike against Iran on Tuesday, triggering Iranian retaliation in what was described as the most serious escalation of the conflict in weeks. Analysts said the market’s sensitivity to negative macroeconomic variables such as oil prices and bond yields has increased noticeably in response. The move came even as data showed South Korea’s August consumer inflation accelerated from a year earlier, largely reflecting a low base effect, though the reading still fell short of market expectations.
Among individual names, Samsung Electronics, SK Hynix and LG New Energy each fell more than 3 percent, while Hyundai Motor and Kia dropped more than 5 percent. Foreign investors were net sellers of around 890 billion won, roughly 650 million US dollars, worth of South Korean shares on the day, underscoring the extent to which overseas capital appears to be rotating away from regional equities as the Iran conflict continues to escalate.
This article was written by Eamonn Sheridan at investinglive.com.