(Sharecast News) - Asia-Pacific markets fell sharply on Monday as the Middle East war entered its fifth week, with escalating tensions weighing heavily on investor sentiment and driving energy prices higher.
As Patrick Munnelly, market strategy partner at TickMill, noted, "Markets took a hit as stocks continued to slide, while oil prices surged amid escalating tensions in the Middle East."
The downturn followed an expansion of the conflict over the weekend, after Yemen's Houthi movement said it had fired ballistic missiles at Israeli military sites in its first direct involvement in the US- and Israel-led war against Iran.
The move marked a further escalation in hostilities that began with airstrikes on Iranian targets on 28 February, dampening risk appetite across the region.
Munnelly added that "Iran-backed Houthi rebels joined the fray, and an expanded US military presence in the region fuelled concerns of a prolonged conflict," while noting that "government bonds gained traction as investors sought safer havens."
Markets broadly lower across Asia
In Japan, the Nikkei 225 dropped 2.79% to 51,885.85, while the Topix fell 2.94% to 3,542.34.
Losses were broad-based, led by Mitsubishi Motors, down 7.89%, Mazda Motor, which declined 7.3%, and Taiyo Yuden, which fell 7.27%.
Munnelly said that "over in Japan, companies trading ex-dividend dragged the Nikkei 225 down by 3.4%."
Investor caution was compounded by a hawkish tone from the Bank of Japan, with policymakers signalling growing concern over inflation risks linked to higher oil prices and yen weakness.
A summary of opinions from the central bank's March meeting suggested that further rate hikes may be required without hesitation if economic conditions remain stable, with markets now pricing in a roughly 69% chance of a move at the 28 April meeting.
Chinese markets were mixed, with the Shanghai Composite rising 0.24% to 3,923.29, supported by gains in Anhui Water Resources Development, Xinjiang Talimu Agriculture Development and Ye Chiu Metal Recycling China, which each rose by around 10%.
In contrast, the Shenzhen Component edged 0.25% lower to 13,726.19.
Munnelly noted that "a broader gauge of Asian markets also dropped, as fears grew that spiking oil prices could dampen economic growth across the region."
In Hong Kong, the Hang Seng Index fell 0.81% to 24,750.79, dragged lower by Shenzhou International Group, down 8.06%, Haier Smart Home, which lost 5.39%, and BYD Electronic International, down 4.84%.
South Korea led regional declines, with the Kospi 100 dropping 3.12% to 5,982.96.
NH Investment & Securities fell 9.64%, while Doosan and Lotte Corporation declined 7.56% and 7.43% respectively.
Reflecting the broader weakness, Munnelly said that "in Asia, tech stocks led the downturn, with South Korea's main index tumbling 3.2%."
Equities lower in Australasia as well
Australian equities also weakened, with the S&P/ASX 200 down 0.65% at 8,461.00.
Temple & Webster Group fell 6.47%, Judo Capital dropped 6.23%, and Life360 declined 5.96%.
In response to rising fuel costs driven by the conflict, prime minister Anthony Albanese said Australia would halve the fuel excise on petrol and diesel for three months, a move expected to cut prices at the pump by 26.3 Australian cents per litre.
New Zealand's S&P/NZX 50 fell 1.44% to 12,748.92, with Pacific Edge down 6.04%, Synlait Milk falling 4.12% and Fletcher Building losing 3.85%.
Dollar mixed as oil prices move higher
In currency markets, the yen strengthened, with the dollar last down 0.42% to trade at JPY 159.63.
The Australian and New Zealand dollars weakened, with the greenback last up 0.31% against the former to AUD 1.4592, as it rose 0.52% on the latter to change hands at NZD 1.7492.
Oil prices moved higher as the conflict intensified, with Brent crude futures last up 2.76% on ICE at $115.68 per barrel, and the NYMEX quote for West Texas Intermediate gaining 1.89% to $101.52, reinforcing inflation concerns and adding to pressure on regional equities.
Munnelly said "oil prices continued their upward march, with Brent crude climbing 2.5% to hover near $115 a barrel, though still off its intraday peak," adding that "this marks a staggering 90% increase in oil prices since the start of the year."
Reporting by Josh White for Sharecast.com.
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