(Sharecast News) - Asia-Pacific markets fell on Wednesday as investors weighed elevated bond yields and lingering geopolitical tensions after US president Donald Trump said he had been "an hour away" from deciding to attack Iran before being persuaded to postpone the strike for a few days.
"Global equities are extending their pullback as the oil shock keeps bond yields elevated and forces a reassessment of AI-led valuations," said Patrick Munnelly, market strategy partner at TickMill.
"The MSCI All Country World Index is down 0.2%, on course for a fourth straight decline and its worst run in more than two months, while the MSCI Asia Pacific fell 1.2%."
Bond markets remained in focus after US Treasury yields briefly hit 5.197% in the previous session, their highest level since July 2007, as investors continued to sell bonds on fears that inflation was reigniting.
The 30-year Treasury yield was last almost one basis point lower at 5.173%.
In Japan, super-long government bond yields eased slightly, with the 30-year JGB yield falling more than nine basis points to 4.068% after hitting record highs on Monday, while shorter-dated debt remained under pressure as the five-year JGB yield climbed to a record 2.041%.
"Brent has stabilised around $110/bbl, but stability at this level is not a comfort," Munnelly said.
"With no visible relief in the Iran conflict, investors are treating the energy shock as persistent rather than transitory."
Munnelly said the 30-year Treasury yield had climbed to levels last seen in 2007, "reflecting concern that the Fed may have to consider tightening again rather than delivering the cuts equity markets had previously assumed".
"That is the key shift: higher oil is no longer just a geopolitical headline; it is becoming a valuation problem," he added.
"After record highs in global equities, the question is whether AI earnings growth can continue to justify elevated multiples against a much less forgiving discount-rate backdrop."
Oil prices fell despite the ongoing Middle East risks, with Brent crude futures last down 1.73% on ICE at $109.35 a barrel, and the NYMEX quote for West Texas Intermediate losing 1.58% to $102.50.
Stocks fall across the region
In regional equities, Japan's Nikkei 225 fell 1.23% to 59,804.41, while the broader Topix declined 1.53% to 3,791.65.
Okuma Corporation dropped 9.99%, Fujikura lost 8.52%, and Sharp Corporation fell 6.12%.
China's Shanghai Composite slipped 0.18% to 4,162.18, while the Shenzhen Component was almost flat, edging up 0.0005% to 15,569.98.
Quzhou XinAn Development fell 10.1%, Beijing Jingneng Power lost 10.04%, and Hunan Huasheng dropped 10.02%.
China kept its benchmark lending rates unchanged for a 12th consecutive month on Tuesday, as policymakers balanced the need to support a slowing economy against rising inflation risks.
The People's Bank of China left the one-year loan prime rate at 3.00% and the five-year rate at 3.50%, in line with expectations.
The one-year LPR influences most corporate and household loans, while the five-year rate is a benchmark for mortgage pricing.
The decision followed data showing April factory output and retail sales were sharply below estimates, even as policymakers remained wary of cost pressures from higher oil prices linked to the Iran conflict.
Factory-gate prices recently turned positive for the first time in more than three years, signalling rising pressure on manufacturers.
"Chinese equities remain under pressure, while Singapore has overtaken Indonesia as Southeast Asia's largest stock market, reflecting relative resilience in a region where investors are rewarding stability and liquidity," Munnelly said.
Hong Kong's Hang Seng Index declined 0.57% to 25,651.12.
Laopu Gold fell 6.94%, Xinyi Solar Holdings lost 5.24%, and BYD dropped 3.94%.
In Seoul, South Korea's Kospi 100 slipped 0.5% to 8,750.02.
Mirae Asset Daewoo Securities declined 6.63%, Korea Electric Power lost 5.75%, and Hyundai Steel fell 5.7%.
"South Korea's Kospi dropped almost 2%, hit by both the broader AI de-rating and Samsung-specific pressure after its labour union announced strike action," Munnelly said.
"Futures point to further losses in Europe and the US, suggesting the market is no longer willing to ignore the inflation implications of the Middle East crisis.
"Nvidia's earnings now become the critical test of whether the AI capex story can still overpower macro-tightening."
Sydney and Wellington in the red as well
Turning down under, Australia's S&P/ASX 200 dropped 1.26% to 8,496.60, led lower by Tuas, which fell 16.85%.
Guzman Y Gomez lost 8.47%, while Brambles declined 6.45%.
Across the Tasman Sea, New Zealand's S&P/NZX 50 was the region's weakest major market, falling 1.64% to 12,761.03.
Pacific Edge dropped 8.33%, Summerset Group Holdings lost 5.47%, and Oceania Healthcare fell 5.19%.
Dollar flat to weaker against regional currencies
In currencies, the dollar was flat against the yen to last trade at JPY 159.07, as it fell 0.09% against the Aussie to AUD 1.4057, and slipped 0.01% on the Kiwi to change hands at NZD 1.7133.
"The global equity rally is now being tested by oil, yields and AI earnings risk," Munnelly said.
Reporting by Josh White for Sharecast.com.
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