(Sharecast News) - Asia-Pacific markets mostly fell on Friday as renewed clashes between the US and Iran in the Strait of Hormuz unsettled investors and weighed on risk sentiment.
"The week ends with risk appetite under pressure as Middle East escalation reintroduces the energy-supply shock markets had started to fade," said Patrick Munnelly, market strategy partner at TickMill.
"The MSCI All Country World Index slipped 0.3%, while MSCI Asia fell 1.1%, reversing Thursday's record close after Wall Street weakened."
The US and Iran traded fire in the strait, with each side claiming the other initiated the attack, adding fresh uncertainty around a fragile ceasefire.
Despite the escalation, US president Donald Trump insisted the ceasefire remained in effect, describing the strikes as "just a love tap" during a call with an ABC News reporter on Thursday.
He later claimed in a Truth Social post that the US had "completely destroyed" the Iranians involved in the exchange, which he said included small boats and drones that "dropped ever so beautifully down to the Ocean, very much like a butterfly dropping to its grave!"
Trump again warned that Iran would face further attacks if it did not agree to a nuclear deal.
"Just like we knocked them out again today, we'll knock them out a lot harder, and a lot more violently, in the future, if they don't get their Deal signed, FAST!" he wrote.
"Oil is again the macro transmission channel," Munnelly said.
"Crude surged after US forces responded to Iranian attacks on naval vessels in the Strait of Hormuz, reviving concerns over disruption to one of the world's most important energy arteries."
Munnelly said the renewed pressure mattered because "the recent equity rally was partly built on the assumption that the geopolitical risk premium would keep bleeding out of oil".
"If Brent stays elevated, the market has to reprice the growth-inflation mix - higher energy costs hit consumers, complicate disinflation, and limit the scope for central banks to lean dovish even if activity softens," he added.
US tech weakness also weighed on sentiment in the region, despite the Nasdaq reaching a record high.
Oil prices were little changed, with Brent crude futures last down 0.01% on ICE at $100.05 per barrel, and the NYMEX quote for West Texas Intermediate falling 0.23% to $94.59.
"The setback is not yet a trend-breaker - Asian equities remain on course for a fifth straight weekly gain, the longest run since January - but it does challenge the clean 'Iran deal / AI rally / soft landing' narrative that had driven global indices to new highs," Munnelly said.
Markets mostly lower, with Seoul the exception
In equities, Japan's Nikkei 225 slipped 0.19% to 62,713.65, while the broader Topix fell 0.29% to 3,829.48.
Yokogawa Electric dropped 9.82%, Ibiden lost 5.25%, and Daiwa Securities Group declined 4.84%.
In China, the Shanghai Composite was almost flat, down 0.003% at 4,179.95, while the Shenzhen Component fell 0.5% to 15,563.80.
Shuifa Energas declined 9.2%, Bros Eastern lost 8.79%, and Jiangsu Zhenjiang New Energy Equipment dropped 7.66%.
Hong Kong's Hang Seng Index fell 0.87% to 26,393.71.
SMIC lost 4.43%, Hansoh Pharmaceutical Group declined 3.82%, and WuXi AppTec slipped 3.36%.
South Korea outperformed, with the Kospi 100 edging up 0.08% to 8,902.70.
Hyundai Mobis jumped 15.29%, Kumho Petro Chemical rose 14.42%, and Hyundai Glovis gained 8.89%.
Turning down under, Australia's S&P/ASX 200 was the region's weakest major market, falling 1.51% to 8,744.40.
Zip Co dropped 4.92%, Westpac Banking Corporation lost 4.83%, and Vicinity Centres declined 4.71%.
Across the Tasman Sea, New Zealand's S&P/NZX 50 fell 0.72% to 13,175.13.#
Westpac Banking Corporation dropped 6.58% in Wellington, while Air New Zealand lost 3.41%, and Meridian Energy declined 3.19%.
Dollar loses ground against regional peers
In currencies, the dollar was last down 0.13% on the yen to trade at JPY 156.73, as it declined 0.42% against the Aussie to AUD 1.3814, and weakened 0.48% on the Kiwi to change hands at NZD 1.6755.
"Cross-asset price action is more cautious than disorderly," Munnelly said.
"S&P 500 futures are up 0.2%, suggesting dip-buying has not disappeared, while the dollar is broadly stable near pre-conflict levels as investors still attach some probability to a diplomatic resolution."
Munnelly added that Treasuries were also calm, with the 10-year yield holding around 4.39%, "though that is still two basis points higher on the week as oil-driven inflation concerns linger.
"Gold edging up toward $4,710 per ounce reflects a modest safe-haven bid rather than outright panic," he said.
"In short, this is not a dash for cash; it is a reassessment of how much geopolitical premium belongs in risk assets."
Reporting by Josh White for Sharecast.com.
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