Asian Stocks Tumble as US-Iran Tensions Drive Oil Prices Higher

Asian Markets Tumble as Tech Sell-off Meets Middle East Tensions

Semiconductor Stocks Lead Regional Losses

The sell-off was most pronounced among technology and chip-related companies, which have been the primary drivers of market gains earlier in the year. In Japan, the Nikkei 225 index suffered significant losses, with reports of declines ranging between 2.8% and 5.8% depending on the session timing. Heavyweight chip equipment makers saw steep drops; Tokyo Electron fell 9%, while Advantest slid 9.4%. SoftBank Group shares dropped 9.2%. In Taiwan, TSMC shares fell between 3.64% and 5% despite the company raising its full-year capital expenditure forecast to between $60 billion and $64 billion, up from the previous range of $52 billion to $56 billion. Analysts noted that investors were less focused on the chipmaker’s upbeat outlook and more concerned that the industry’s aggressive investment cycle may be becoming difficult to justify. Other regional markets also struggled. In Hong Kong, the Hang Seng dipped 2%, with notable losses for companies including Meituan and Kuaishou. China’s Shanghai Composite index fell 1.6%. South Korean markets remained closed for a public holiday, but the nation’s tech sector had already seen significant volatility earlier in the week, prompting the government to announce a temporary ban on new listings of exchange-traded funds (ETFs) tied to certain major technology firms.

US-Iran Conflict Drives Oil Surge

Market sentiment was further weighed down by escalating tensions in the Middle East. Central Command stating the actions were intended to further degrade Iranian military capabilities. The intensification of the conflict pushed oil prices to their highest levels in a month, raising concerns about potential supply disruptions through the Strait of Hormuz. West Texas Intermediate (WTI) futures were on track for weekly gains exceeding 10%, marking their largest weekly advances since April. Investors fear that higher energy costs could complicate the inflation outlook for global central banks, even as recent U.S. economic data reinforced expectations that the Federal Reserve may keep interest rates unchanged in the near term.

For more on this story, see Oil Prices Surge as US-Iran Tensions Rise and Investors Shift to Risk-Off Mode.

Investor Sentiment and AI Valuation Concerns

The recent market volatility marks a sharp reversal for global AI-related shares following months of significant gains. Analysts suggest the current environment reflects an unwinding of crowded AI trades as investors question whether lofty valuations can be sustained. Asia's AI trade thesis is being tested again, analysts at HSBC noted, pointing to concerns regarding potential overcapacity in the AI build-up. While some analysts maintain that the long-term fundamentals for AI spending remain intact, the market is currently grappling with the difficulty of timing the AI investment cycle. Andrew Jackson, a strategist at Ortus Advisors, described the market movement as an unwinding of momentum trades rather than a fundamental deterioration of the sector. However, the broader trend saw investors rotating out of high-valuation semiconductor names into more defensive sectors, such as banking, following robust earnings reports from major lenders.

Market Performance Snapshot

Index / Commodity	Reported Movement
Japan Nikkei 225	Down 2.8% to 5.8%
Hong Kong Hang Seng	Down 2%
Shanghai Composite	Down 1.6%
Brent Crude	Up 0.7% to 1.1%
U.S. WTI Crude	Up 0.7% to 1.3%

As of Friday, the U.S. dollar held steady while safe-haven demand remained a factor for investors. In Japan, Finance Minister Satsuki Katayama engaged in “jawboning” to support the yen, which has been trading near 40-year lows, as the government seeks to steer state pension funds toward increased domestic asset investment.