Asia report: Seoul leads declines as investors watch Middle East

(Sharecast News) - Asia-Pacific markets fell sharply on Wednesday as escalating conflict in the Middle East fuelled risk-off sentiment across the region, with South Korean equities suffering their worst single-day decline on record.

Investors were also closely watching developments in China, where policymakers were convening the annual 'Two Sessions' parliamentary gathering, with premier Li Qiang expected to outline key economic targets when the National People's Congress opens on Thursday.

"The simultaneous sell-off in bonds due to inflation fears and the drop in equities over concerns about economic growth highlight the ongoing turbulence in financial markets," noted Patrick Munnelly, market strategy partner at TickMill, adding that "the risk of rapidly evolving events continues to heighten volatility."

Seoul leads regional declines

South Korea led the regional rout, with the Kospi 100 plunging 11.9% to 5,826.30.

Defence and shipbuilding stocks recorded steep losses, with Hanwha Systems dropping 20.93%, Hanwha Ocean sliding 19.87% and Korea Aerospace Industries falling 19.79%.

Munnelly said the scale of the sell-off reflected broader global anxiety, noting that "this stabilisation has not extended to Asian markets, which remain deeply in the red. South Korea's Kospi is leading the decline."

Japanese markets also declined sharply.

The Nikkei 225 sank 3.61% to 54,245.54 and the Topix fell 3.67% to 3,633.67.

Among individual stocks, Kyowa Kirin slumped 18.31%, DOWA Holdings dropped 10.57% and Sumitomo Metal Mining fell 10.5%.

Economic data from Tokyo offered a more positive backdrop, however, with Japan's consumer confidence index rising to 40.0 in February from 37.9 in January, beating forecasts of 38.2 and marking the highest reading since April 2019.

The improvement was broad-based, with overall livelihood increasing to 39.7 from 36.8, income growth rising to 42.5 from 42.0, the employment outlook improving to 44.0 from 42.4 and willingness to purchase durable goods climbing to 33.9 from 30.4.

Greater China stocks also in the red

Chinese equities were also weaker - the Shanghai Composite declined 0.98% to 4,082.47 while the Shenzhen Component fell 0.75% to 13,917.75.

Jiangsu Lianyungang Port Co dropped 10.06%, Beijing Hanjian Heshan Pipeline Co slid 10.04% and Cosco Shipping Specialized Carriers lost 10%.

Official data showed China's factory activity softened in February as manufacturers paused production and shipments during an extended holiday period.

The official manufacturing purchasing managers' index fell to 49 from the National Bureau of Statistics, missing economists' forecast of 49.1 and indicating contraction.

In contrast, private surveys from RatingDog painted a stronger picture, with its manufacturing PMI rising to 52.1 in February from 50.3 in January, beating expectations of 50.1, while the services PMI jumped to 56.7 from 52.3, well above the consensus forecast of 52.3.

Munnelly said investors remained focused on energy markets and geopolitical risks, noting that "markets remain acutely sensitive to headlines about missile and drone strikes, as well as political statements from Trump and other key figures."

In Hong Kong, the Hang Seng Index fell 2.01% to 25,249.48.

AIA Group dropped 4.71%, WuXi Biologics declined 4.59% and CK Hutchison Holdings lost 4.47%.

Sydney in the red despite GDP expansion

Australian equities also retreated, with the S&P/ASX 200 falling 1.9% to 8,901.20.

Paladin Energy declined 7.57%, while Magellan Financial Group and DroneShield each dropped 7.18%.

Economic data showed Australia's economy expanded faster than expected in the fourth quarter.

Gross domestic product grew 0.8% quarter-on-quarter, beating forecasts of 0.7% and accelerating from the previous quarter's 0.5% pace, while annual growth reached 2.6% year-on-year, above expectations of 2.2%.

Output increased in 17 of the economy's 19 industries, with both public and private demand contributing 0.3 percentage points to overall growth.

Household spending remained resilient, with discretionary spending rising 0.4% during the quarter, supported by retail events such as Black Friday.

At the same time, households continued rebuilding financial buffers, with the saving ratio rising to 6.9%, the highest level in more than three years, while per capita GDP increased 0.9% year-on-year, its strongest reading since 2022.

Across the Tasman Sea, New Zealand's S&P/NZX 50 declined 0.65% to 13,531.12, with Serko falling 5.67%, ANZ Group Holdings dropping 4.29% and Eroad losing 3.39%.

Dollar weakens as oil prices rise further

In currency markets, the dollar weakened against regional peers, last trading down 0.39% on the yen at JPY 157.13, as it declined 0.23% against the Aussie to AUD 1.4180 and dropped 0.43% on the Kiwi to change hands at NZD 1.6906.

Oil prices were higher, with Brent crude futures last up 1.18% on ICE at $82.36 per barrel and the NYMEX quote for West Texas Intermediate gaining 0.36% to $74.83.

Munnelly said markets were increasingly focused on the potential economic fallout from energy markets, warning that "a more significant and sustained spike in oil prices - well above the five-year average of $80 per barrel - may be necessary for traders and investors to fully adjust asset allocations to reflect a gloomier economic outlook."

Reporting by Josh White for Sharecast.com.