Geopolitical Tensions Ignite Oil Rally, Spark Uncertainty in Asian Stocks

Global markets experienced a turbulent Wednesday, characterized by mixed Asian share performance and a significant surge in oil prices, following fresh U.S. military strikes on Iran. These strikes were launched in retaliation for attacks on three ships in the strategically vital Strait of Hormuz, escalating geopolitical tensions in the Middle East. Brent crude, the international benchmark, jumped 3.2% to $76.54 a barrel, while U.S. benchmark crude also rose 3.2% to $72.72 a barrel. Both had recently declined to levels seen before the late February conflict with Iran, underscoring the renewed volatility introduced by these developments. The commitment to a peaceful resolution seems tenuous amidst these flare-ups, adding considerable uncertainty to global oil prices, which had previously fallen from peaks well above $100 during the initial conflict.

Compounding market anxieties, the ongoing fascination with artificial intelligence (AI)-related shares continues to fuel worries that their valuations may have outpaced the actual productivity gains and profits expected from massive investments in computer chip production capacity and data centers. Swissquote analyst Ipek Ozkardeskaya noted that "geopolitical headlines will likely determine market sentiment over the coming hours. A further deterioration in the situation could weigh further on equity valuations along with rising stress in technology."

Across Asia, market responses were varied. Tokyo’s Nikkei 225 declined by 1.2% to 67,426.47, while South Korea’s Kospi shed a substantial 5.6%, closing at 7,226.48. The Kospi had experienced a roller-coaster ride, briefly surpassing the 9,000 level last month before succumbing to heavy selling, particularly in major AI-related technology shares such as Samsung Electronics and SK Hynix. Samsung notably fell 6.7% on Wednesday, following a 7% drop the previous day, and SK Hynix, after early gains, ended down 3.6%. In contrast, Taiwan’s Taiex managed a 0.6% rise, and Hong Kong’s Hang Seng index gained 2.9% to 24,178.30.

A notable performance in Hong Kong was seen from Chinese AI model startup Zhipu, also known as Z.ai and traded as Knowledge Atlas Technology, which saw its shares surge 14% on Wednesday. This comes as a six-month lock-up period for "cornerstone" investors, following its $558 million trading debut in Hong Kong in early January, is set to expire this week. Despite earlier concerns that this expiration might trigger a sell-off, state-owned China National Radio reported late Tuesday that nearly 70% of Zhipu’s cornerstone investors are committed to retaining their holdings. Zhipu’s share price has demonstrated remarkable growth, having risen over 1,300% since its January debut. Meanwhile, China’s Shanghai Composite index recorded a slight decline of 0.3% to 3,978.80. Elsewhere, Australia’s S&P/ASX 200 shed 0.5% to 8,764.70, and India’s Sensex also lost 0.5%.

On Wall Street, the previous day, Tuesday, saw a downturn as AI stocks pulled the broader market lower. The S&P 500 fell 0.4% to 7,503.85, although a majority of its constituent stocks actually rose. The tech-heavy Nasdaq composite, heavily influenced by AI industry drops, decreased 1.2% to 25,818.69, while the Dow Jones Industrial Average dropped 0.2% from its record high to close at 52,925.15. Key AI-related stocks experienced significant losses, with Advanced Micro Devices sinking 6.5%, Intel shedding 9.7%, and Micron Technology losing 4.7%. SpaceX, which encompasses the xAI business, also fell 6.8% on its first day of trading after being included in the Nasdaq 100 index. Separately, Rivian Automotive dropped 18.1% following its announcement to sell 75 million shares, a move that would dilute existing shareholder stakes.

In currency markets early Wednesday, the U.S. dollar strengthened against the Japanese yen, rising to 162.27 yen from 162.11 yen. The euro also saw a modest climb against the dollar, reaching $1.1421 from $1.1414.