(Sharecast News) - Asia-Pacific markets fell on Friday as South Korea's Kospi retreated sharply from a fresh record high, while investors tracked the second day of talks between US president Donald Trump and his Chinese counterpart Xi Jinping.
"Risk appetite is finally showing some fatigue as the oil shock starts to challenge the AI-led equity surge," said Patrick Munnelly, market strategy partner at TickMill.
"MSCI Asia fell 1.2%, US futures are down 0.3% and Europe is set to open around 1% lower, with investors reassessing how long record equity multiples can look through higher energy costs.
"For now, the AI story is not broken, but the burden of proof is rising: tech earnings momentum needs to keep absorbing a less friendly rates backdrop."
The broader regional decline came as Trump left Beijing after a two-day summit with Xi, which was also attended by US business leaders including Tesla chief executive Elon Musk and Nvidia boss Jensen Huang.
Xi warned Trump on Thursday that Washington and Beijing could face "clashes and even conflicts" if the issue of Taiwan independence was mishandled.
Failure to handle the matter "properly" could place "the entire relationship in great jeopardy," Xi was quoted as saying.
Wall Street hit fresh highs overnight after strong earnings from Cisco, but the momentum failed to carry into Asia.
Oil prices rose, with Brent crude futures last up 2.18% on ICE at $108.02 per barrel, and the NYMEX quote for West Texas Intermediate gaining 2.39% to $103.59.
"Oil is the macro pressure point," Munnelly said.
"Brent is back near $107 per barrel, having dipped to $104 yesterday after Trump first said the US 'doesn't need the Strait of Hormuz open' before later softening that stance.
"The market read-through is straightforward: the probability of a prolonged disruption remains too high to fade."
Munnelly said China had called for the Strait to be reopened quickly and for renewed talks on Iran, while the Trump-Xi meeting had been described positively "but without enough substance to offset inflation concerns".
"Taiwan risk also remains unresolved," he added.
"The result is a familiar stagflationary mix - higher oil, higher yields, a stronger dollar, weaker equities."
Markets in the red across the Asia-Pacific region
In equities, Japan's Nikkei 225 fell 1.99% to 61,409.29, while the broader Topix declined 0.39% to 3,863.97.
Toppan Holdings dropped 16.6%, SMC Corporation lost 14.58%, and Nexon fell 10.97%.
"Inflation jitters are being reinforced by the data," Munnelly said.
"Japan's April PPI printed at 2.3% month-on-month, far above the 0.8% consensus, pushing the 10-year JGB yield up as much as seven basis points.
"That follows the earlier upside surprise in US PPI and keeps the market alert to second-round effects from energy."
In China, the Shanghai Composite declined 1.02% to 4,135.39, while the Shenzhen Component fell 1.17% to 15,561.37.
Beijing Geoenviron Engineering & Technology dropped 10.02%, Jinyao Pharmaceutical Co lost 10.01%, and TDG Holding fell 10%.
Hong Kong's Hang Seng Index slid 1.62% to 25,962.73.
JD Health fell 6.62%, Alibaba Health Information Technology lost 6.61%, and China Hongqiao Group declined 5.92%.
South Korea's Kospi 100 dropped 6.59% to 9,018.37.
Hanwha Solutions fell 15.06%, KakaoPay lost 11.59%, and Samsung C&T declined 10.29%.
Australia's S&P/ASX 200 slipped 0.11% to 8,630.80.
IperionX dropped 9.08%, Mineral Resources fell 7.68%, and Liontown Resources lost 6%.
Across the Tasman Sea, New Zealand's S&P/NZX 50 declined 0.46% to 12,965.01.
Serko fell 4.61%, Synlait Milk lost 4.17%, and Fisher & Paykel Healthcare Corporation dropped 3.81%.
New Zealand's manufacturing sector lost momentum in April, with the BusinessNZ performance of manufacturing index falling to 50.5 from 52.8, only marginally above the 50 level that separates expansion from contraction.
New orders dropped to 48.2 from 55.0, slipping into contraction, while deliveries fell to 46.5 from 49.6, the weakest reading since July 2024.
Production eased to 51.7 from 53.4, finished stocks declined to 50.5 from 53.8, while employment improved to 53.4 from 51.8.
BusinessNZ director of advocacy Catherine Beard said many firms cited the impact of the Iran war on freight costs, fuel prices and delivery times for raw materials.
"The proportion of respondents highlighting negative influences on their business performance was 63.6%," she said, up from 62.0% in March.
BNZ head of research Stephen Toplis warned that the slowdown may be becoming more serious.
"We feared it was only a matter of time before the wheels started to fall off and, alas, the April survey indicates that time may now have arrived," he said.
Dollar slips against yen, gains on Australasian currencies
In currencies, the dollar slipped 0.01% against the yen to JPY 158.35, but rose 0.79% on the Aussie to AUD 1.3957 and gained 0.91% against the Kiwi to change hands at NZD 1.7070.
"The dollar is firmer for a fifth straight session, still benefiting from its haven status since the Middle East escalation began, while bonds are under pressure across the curve," Munnelly said.
"The US two-year yield is up three basis points to 4.05% and the 10-year has pushed through 4.50% to its highest level since May last year, on Kevin Warsh's first day as Fed Chair.
"AI can still support equity leadership, but oil, yields and UK politics are now doing more damage at the margin," he added.
Reporting by Josh White for Sharecast.com.
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