Stocks Sink Across Asia as Winning Trades Unravel: Markets Wrap

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(Bloomberg) — Asian stocks plunged the most in nearly a year, led by the biggest South Korean crash since the global financial crisis in 2008, as mounting concerns over the Iran war triggered an exodus from some of the world’s best-performing markets.

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The MSCI Asia Pacific Index slumped as much as 4.5%, with South Korean stocks plunging as much as 12% amid mounting panic across trading desks. Before the slump, the Kospi Index — a poster child for AI investments — was the world’s best-performing gauge. Japanese shares fell 4%, Hong Kong dipped 2.8% and India dropped 2%.

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The big moves in Asian stocks were in contrast to other markets, after President Donald Trump provided assurances on safeguarding shipping through the Strait of Hormuz helped calm nerves. Equity-index futures for the US edged lower, indicating some modest losses. Contracts for Europe were flat, pointing to a muted start to trading.

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Brent crude gained 1.6% — compared with jumps of 4.7% and 7.3% in the past two days — and gold gained 1.4%. The Bloomberg Dollar Spot Index was up 0.2% and Treasuries were steady, with the yield on the benchmark 10-year little changed at 4.06%, after bond markets tumbled earlier in the week.

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“Asian markets are choking on a toxic cocktail — surging energy prices, a resurgent dollar, and geopolitical tensions that nobody is sleeping through anymore,” said Hebe Chen, a senior market analyst at Vantage Global Prime. “This isn’t just a technical pullback but more of a psychological capitulation.”

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The US-Israeli attack on Iran has destabilized the Middle East and threatens to deliver a new inflationary shock to the global economy by pushing up oil prices. There’s also no clear sense of when or how the war will end, raising the prospect of a prolonged conflict and unforeseen consequences beyond the White House’s control. 

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The war continued to reverberate across the Middle East, with Israel bombarding Tehran in a fresh wave of strikes. The Islamic Republic fired missiles at Qatar, Bahrain and Oman, with Doha saying targets weren’t limited to military interests. Qatar and Iraq halted production at major energy sites.

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“The risk here is the scale of the supply shock the war will create,” wrote Kyle Rodda at Capital.com. “Given the very chaotic nature of the events and the strong incentive for all combatants to escalate right now, this uncertainty could drag on for a while.”

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This conflict is different from Trump’s trade war, his talk of invading Greenland or his assault on the Federal Reserve’s independence, all of which unnerved investors globally.

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In each case, traders came to expect that Trump would backtrack if markets fell too far, a strategy that came to be known as the TACO trade, which stands for Trump Always Chickens Out — and created a buy-the-dip mentality that allowed stocks to rally back.

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“For now, markets are trading headline to headline,” said Fawad Razaqzada at Forex.com. “Much will depend on whether tensions stabilize — or whether this proves to be the start of a more prolonged disruption to global supply.”