Asian stock markets fell broadly on the 2nd as global financial market tensions escalated in the aftermath of U.S. and Israeli airstrikes on Iran. Rising oil prices amid Middle East instability have dampened investor sentiment and strengthened risk-averse behavior, analysts said.
According to Bloomberg, Japan's benchmark Nikkei 225 index stood at 58,070 yen as of 10:48 a.m., down 1.37% from the previous trading day. The decline widened to as much as 2.66% in early trading before bargain hunters stepped in to pare losses.
Greater China markets also showed weakness. Hong Kong's Hang Seng Index fell more than 2% as of 11:05 a.m., while Taiwan's Taiex dropped 0.6%. The Shanghai Composite Index, however, edged up around 0.1%, showing relative resilience.
Markets attributed the selloff to Middle East geopolitical risks and rising energy prices weighing on investor sentiment. "Risk aversion among investors has intensified due to the U.S. and Israeli attacks on Iran and the resulting surge in crude oil prices," Nikkei reported.
Some institutions have begun adjusting their investment strategies. Citigroup downgraded its rating on Japanese equities from "overweight" to "tactical underweight" following the U.S. attack on Iran. "With oil prices expected to remain meaningfully above $80 per barrel, commodity assets are relatively favorable," Citi said in a report.
Concerns are also growing over macroeconomic shocks from a prolonged conflict. Barclays warned that "each sustained $10 increase in oil prices could reduce global growth by 0.1 to 0.2 percentage points over the next 12 months," adding that "if oil prices remain at the $120 level, significant damage to the U.S. and global economies would be inevitable."