Asian stocks trade mixed as AI-led selloff and Yen rally counter Iran optimism

Asian stocks are mixed at the start of a new week despite hopes for a US-Iran peace deal.
Selling in AI-linked shares weighs on KOSPI, while the Nikkei 225 falls amid a sharp JPY rally.
Traders await further developments surrounding the US-Iran crisis and key US macro data.

Haresh Menghani FXStreet

Asian shares were mixed at the start of a new week as losses in South Korea's KOSPI and Japan's Nikkei 225 counter improving risk sentiment due to easing Middle East tensions. In fact, US President Donald Trump called off planned attacks on Iran over the weekend, claiming that Mideast allies have reached the parameters of a deal on Tehran's nuclear program and the reopening of the Strait of Hormuz.

Trump further told reporters that the US and Iran are set to resume negotiations Monday afternoon, fueling optimism over a diplomatic resolution to end the five-month-old war. Adding to this, the OPEC+ decision on Sunday to increase production in September triggers a steep decline in crude oil prices and eases inflation fears. This, in turn, tempers bets for a more aggressive tightening by the US Federal Reserve (Fed) and further boosts investors' confidence.

However, South Korea’s KOSPI slumped nearly 5%, reversing a part of Friday's record 18% surge, amid a fresh wave of selling in Artificial Intelligence (AI)-linked technology shares. Japan's Nikkei 225 also traded lower on the back of a sharp rally in the Japanese Yen (JPY) following confirmed joint currency-intervention measures by Japan and the US. Chinese markets, however, were resilient despite a weak private-sector survey of China's manufacturing sector.

Furthermore, India's Nifty50 rose around 0.80% as the focus remains on the Reserve Bank of India (RBA) policy decision later this week. Meanwhile, US equity futures moved higher as attention turns to the July employment report, popularly known as the Nonfarm Payrolls (NFP) report, and other important macro releases scheduled at the start of a new month. Apart from this, geopolitical developments might continue to infuse volatility across financial markets.

Asian stocks FAQs

Which are the main stock market indices in Asia?

Asia contributes around 70% of global economic growth and hosts several key stock market indices. Among the region’s developed economies, the Japanese Nikkei – which represents 225 companies on the Tokyo stock exchange – and the South Korean Kospi stand out. China has three important indices: the Hong Kong Hang Seng, the Shanghai Composite and the Shenzhen Composite. As a big emerging economy, Indian equities are also catching the attention of investors, who increasingly invest in companies in the Sensex and Nifty indices.

What are the main sectors represented in Asian stock markets?

Asia’s main economies are different, and each has specific sectors to pay attention to. Technology companies dominate in indices in Japan, South Korea, and increasingly, China. Financial services are leading stock markets such as Hong Kong or Singapore, considered key hubs for the sector. Manufacturing is also big in China and Japan, with a strong focus on automobile production or electronics. The growing middle class in countries like China and India is also giving more and more prominence to companies focused on retail and e-commerce.

What factors drive Asian stock markets?

Many different factors drive Asian stock market indices, but the main factor behind their performance is the aggregate results of the component companies revealed in their quarterly and annual earnings reports. The economic fundamentals of each country, as well as their central bank decisions or their government’s fiscal policies, are also important factors. More broadly, political stability, technological progress or the rule of law can also impact equity markets. The performance of US equity indices is also a factor as, more often than not, Asian markets take the lead from Wall Street stocks overnight. Finally, the broader risk sentiment in markets also plays a role as equities are considered a risky investment compared to other investment options such as fixed-income securities.

What are the risks of investing in Asia stock markets?

Investing in equities is risky by itself, but investing in Asian stocks comes along with region-specific risks to be taken into account. Asian countries have a wide range of political systems, from full democracies to dictatorships, so their political stability, transparency, rule of law or corporate governance requirements may diverge considerably. Geopolitical events such as trade disputes or territorial conflicts can lead to volatility in stock markets, as can natural disasters. Moreover, currency fluctuations can also have an impact on the valuation of Asian stock markets. This is particularly true in export-oriented economies, which tend to suffer from a stronger currency and benefit from a weaker one as their products become cheaper abroad.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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