Asian shares on Tuesday recorded their steepest fall since 2022, as the Middle East war completed a month, fuelling fears of higher inflation and slower economic growth.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.55 per cent and was on track for a monthly decline of more than 12 per cent, marking its worst performance since September 2022.
Japan’s Nikkei dropped 0.93 per cent and was set to lose 12.6 per cent for the month, while South Korea’s Kospi was headed for a decline of over 17 per cent, its sharpest fall since 2008, according to Reuters.
The sell-off capped a volatile month across global markets, with investors rattled by escalating tensions and repeated attacks in the Middle East involving the United States, Israel and Iran.
“It appears markets have gone from just mechanically trading headlines into a little bit more of a fear mode, taking risk off the table,” said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho.
Investor sentiment briefly improved after a report said US President Donald Trump was open to ending the military campaign against Iran even if the Strait of Hormuz remains largely closed.
US futures recovered early losses, with Nasdaq futures rising 0.34 per cent and S&P 500 futures gaining 0.4 per cent.
Despite this, oil prices remained elevated, with Brent crude hovering near $115 per barrel and on course for a record monthly surge of nearly 59 per cent.
Rising energy prices have intensified inflation concerns, particularly for Asian economies that rely heavily on Middle East oil. Analysts warned that if oil prices remain elevated, the focus could soon shift from inflation risks to slowing growth.
Bond markets also came under pressure as expectations of prolonged higher interest rates gained traction. The Federal Reserve is now widely expected to keep rates unchanged this year, compared to earlier bets on rate cuts before the conflict began.
Meanwhile, the US dollar strengthened, emerging as a key safe-haven asset amid the uncertainty, while gold prices also edged higher as investors sought refuge from market volatility.
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