Global stock markets diverged starkly Wednesday, as falls across Asia contrasted with a much more sanguine response from investors in Europe and the United States.
Asian stocks fell sharply, with a record selloff in Seoul, as investors fretted about rising oil prices in a region heavily dependent on imports from the Middle East.
South Korea’s Kospi plunged 12%, following a 7% decline Tuesday. The index was hit particularly hard by a selloff in chip companies “after some bumper gains for a handful of big chip (names) this year,” Neil Wilson, a strategist at Saxo, wrote in a note Wednesday.
Elsewhere in the region, Japan’s Nikkei closed 3.6% down and Taiwan’s TSEX 50, also heavily exposed to chipmakers, dropped 4.1%. Hong Kong’s Hang Seng finished the session 2% lower, while China’s Shanghai Composite fell almost 1%.
Asian economies rely heavily on Middle East oil shipped via the Strait of Hormuz, partly controlled by Iran. Shipping through the waterway has effectively ground to a halt, cutting off the vast majority of the Gulf’s energy exports from the rest of the world. Last year, more than 80% of crude oil shipped through the strait was bound for Asia, according to an International Energy Agency analysis of Kpler data.
Worries about disruptions to global energy supply prompted US President Donald Trump Tuesday to order “insurance and guarantees” from the US government for ships traveling through the Gulf. Trump also said the US navy would escort tankers through the Strait of Hormuz “if necessary.”
Despite the intervention, oil and natural gas prices continued their climb Wednesday.
Brent crude, the global oil benchmark, rose 1.5% in morning trade to $82.6 a barrel. WTI, the US benchmark, posted a 0.74% increase to $75.
In Europe, stock markets in London, Frankfurt and Paris moved into positive territory, having closed sharply lower Tuesday. US futures also pointed to a slightly higher open, as American investors continued to shrug off the potential economic consequences of the war.
“US (investors) are more focused on what Trump would do, but underestimate Iran’s reaction function,” Mohit Kumar, an analyst at Jefferies, wrote in a note Wednesday. But he added: “We remain in the more cautious camp and are not ready to buy the market.”
Economists have warned that a prolonged conflict in the Middle East could drive up inflation and slow economic growth around the world. The United States, as a net exporter of oil, would be less exposed than Europe and Asia, however.
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