Asia report: Most markets fall as US-Iran conflict flares up again

(Sharecast News) - Asia-Pacific markets were mostly lower on Wednesday after US president Donald Trump told the NATO summit in Turkey that the ceasefire with Iran was "over", as renewed hostilities in the Middle East sent oil prices sharply higher.

"Oil is back in the inflation seat; Iran risk is back on the tape; Korea's AI trade moves from leadership to liquidation; gold is catching the haven bid; and tonight's Fed minutes now land with inflation expectations moving the wrong way," said Patrick Munnelly, market strategy partner at TickMill.

The US launched a "series of powerful strikes" against Iran on Tuesday evening, retaliating for attacks on three commercial vessels travelling through the Strait of Hormuz, US Central Command said.

Earlier, the Treasury Department revoked a licence that had permitted Iran to sell oil around the world following the attacks in the strait.

Iran's foreign ministry described the strikes as a "gross violation of the Memorandum of Understanding" reached last month between Washington and Tehran to end their war.

"The powerful armed forces of the Islamic Republic of Iran, as they have repeatedly shown, will not hesitate to defend Iran's territorial integrity, national sovereignty, and national security against American military aggression," the ministry said, according to a Google translation reported by CNBC.

Speaking to reporters at the NATO summit in Ankara, NATO secretary general Mark Rutte said America's strikes were "absolutely necessary".

"When you have a ceasefire and Iran is basically violating the ceasefire - we see what happened yesterday with ships being attacked - I think it is totally crucial that the US forcefully reacts," he said.

Oil prices surged as investors assessed the renewed risk to energy supplies.

Brent crude futures were last up 5.06% on ICE at $77.91 per barrel, while the NYMEX quote for West Texas Intermediate gained 4.86% to $73.86.

"Brent crude surged more than 2% above $76 a barrel after US airstrikes on Iran and Washington's decision to revoke the waiver that had allowed Tehran to sell oil internationally," Munnelly said.

"The escalation follows renewed attacks on shipping routes around the Strait of Hormuz, turning what had been a fading risk premium back into a live inflation shock."

Munnelly said the oil market was no longer simply pricing tanker flows or surplus risk, but the possibility that Middle East disruption could return just as central banks had been hoping lower energy would do part of the disinflationary work.

"Markets do not need a full regional war to reprice risk; they only need enough uncertainty around energy flows to lift crude, steepen inflation expectations and make central-bank decisions harder," he said.

Most markets in the red as Iran conflict reescalates

Japan's Nikkei 225 fell 2.11% to 66,819.05, while the broader Topix declined 1.37% to 4,006.43.

Taiyo Yuden dropped 8.5%, Hoya Corporation lost 6.77%, and Mitsui Kinzoku fell 6.12%.

Japan's current account surplus widened to JPY 3,968.3bn in May from JPY 3,320.5bn a year earlier, but missed expectations for JPY 4,121bn.

The goods account swung to a marginal surplus of JPY 0.07bn from a JPY 497.1bn deficit, as exports rose 14.7% and imports increased 8.1%.

The primary income surplus rose to JPY 4,275.6bn from JPY 4,180.2bn, while the secondary income deficit narrowed to JPY 304.0bn from JPY 493.5bn.

The services account slipped to a marginal JPY 0.1bn deficit from a JPY 130.9bn surplus.

In China, the Shanghai Composite fell 0.49% to 3,970.88, while the Shenzhen Component dropped 1.87% to 14,939.73.

Zhuzhou Times New Material Technology, Fujian Kuncai Material Technology and Keeson Technology each declined just over 10%.

Hong Kong's Hang Seng Index bucked the regional trend, jumping 2.99% to 24,199.46.

Alibaba Group surged 12.21%, Xiaomi gained 9.52%, and Kuaishou Technology rose 8.7%.

South Korea's Kospi 100 plunged 5.47% to 9,079.92.

Korea Aerospace dropped 11.36%, LS Industrial Systems lost 10.92%, and LIG Nex1 fell 10.64%.

The South Korean exchange briefly halted sell-side trading for the benchmark Kospi through a five-minute sidecar after the index fell more than 5%.

The Kospi extended declines into bear-market territory, falling 5.35% and leaving it around 20% below its record high from 19 June, according to LSEG data.

South Korea has been among the world's strongest major equity markets this year, but it has become increasingly exposed to swings in semiconductor sentiment after SK Hynix and Samsung Electronics reportedly crossed a combined 50% weighting in the index in June.

SK Hynix fell 5.68%, while Samsung Electronics dropped 6.25%.

Munnelly said equities were under pressure, although the damage was concentrated rather than universal, with South Korea again carrying the pain.

"The Kospi dropped more than 5%, moving into bear-market territory as investors continued to dump crowded semiconductor exposure," he said.

"This is the second warning in as many sessions that the AI trade has moved from leadership to liquidation in parts of Asia."

Munnelly said the issue was as much positioning as macro, given the scale of the previous gains in Korea's chip-heavy market.

"The US setup is more mixed, which suggests investors are still trying to separate the broader AI platform story from the semiconductor unwind," he said.

"But that distinction may be harder to maintain if Korea keeps selling off, oil keeps rising, and real yields refuse to fall."

"The AI bid can absorb profit-taking," he added.

"It struggles more when energy, inflation expectations and geopolitical risk all move against duration-heavy growth equities at the same time."

Australasian markets in the red as RBNZ hikes rates

Heading down under, Australia's S&P/ASX 200 slipped 0.21% to 8,785.10.

IperionX fell 14.14%, Wisetech Global lost 7.28%, and Austal declined 6.36%.

Across the Tasman Sea, New Zealand's S&P/NZX 50 fell 0.71% to 13,665.18.

Synlait Milk dropped 7.69%, Fisher & Paykel Healthcare lost 2.64%, and Infratil declined 2.27%.

The Reserve Bank of New Zealand raised its official cash rate by 25 basis points to 2.50% at its July meeting, in line with expectations, as it sought to return inflation to its 2% target while avoiding unnecessary economic instability.

The central bank said the partial reopening of the Strait of Hormuz had pushed global oil, gas and petrochemical prices lower, easing near-term inflation pressures, with headline inflation expected to fall from a peak of 3.9% in the second quarter of 2026 to around 2% over the next 12 months.

However, it warned that the effects of the energy shock could persist, with medium-term risks dependent on firms' price-setting behaviour, margin rebuilding and the impact of a weaker exchange rate.

Munnelly said the RBNZ's hike reinforced the broader point that central banks were not yet free to ignore inflation even as growth and risk assets wobbled.

"Bonds reacted accordingly," he said.

"Government yields rose in Australia and Japan, while US Treasuries were comparatively steadier."

Dollar makes gains on yen and Aussie, loses against Kiwi

In currencies, the dollar was last up 0.2% on the yen to trade at JPY 162.42 and gained 0.03% against the Aussie to AUD 1.4438, while it fell 0.43% against the Kiwi to change hands at NZD 1.7538.

Reporting by Josh White for Sharecast.com.