Global market turmoil continued for a third day on Wednesday as investors in Asia, home to some of the year’s best-performing indexes, grew increasingly concerned over rising energy costs.
The stock sell-off hit East Asia, which is highly dependent on imported oil and gas, particularly hard. In South Korea, the Kospi index, which had been up almost 50 percent this year, plunged 12 percent. Trading was temporarily suspended to help stem the rout.
Benchmark indexes in Japan fell more than 3 percent and 4.35 percent in Taiwan. Both had reached record highs in recent weeks. Hong Kong’s Hang Seng Index was down nearly 3 percent.
Some analysts described the rapid selling in Asia as “optimism backlash.” Global investors have heaped huge sums of money on artificial intelligence stocks in Asia this year, betting the sector offered better value than its potentially overstretched counterpart in the United States.
War in the Middle East has begun to shift that narrative. The economies of Japan, South Korea and Taiwan are among the world’s most vulnerable to disruptions in the flow of natural gas and oil from the Middle East. Amid the conflict, Iran has effectively blocked transit through the Strait of Hormuz, a key maritime route for much of Asia’s energy.
Japan, in particular, imports around 90 percent of its oil through the strait. South Korea depends on the Middle East for about 70 percent of its crude imports. About 60 percent of Taiwan’s oil — and about a third of its natural gas — arrives by ship from countries via the strait.
Earlier this week, President Trump said he plans to do “whatever it takes” in his military campaign against Iran, and that “wars can be fought forever.” These statements were widely interpreted as suggesting that the conflict could exceed his earlier four- to five-week estimate.
Energy Prices: Spiking oil and natural gas prices are expected to weigh on Asia’s biggest economies, many of which already spend well over $100 billion each year importing energy. On Wednesday, international crude oil prices rose more than 2 percent to about $83 a barrel, extending the past two days’ surge. Spot rates for natural gas in Asia soared to their highest level in years.
Inflation Fears: The energy price surge has caused investors to begin raising inflation expectations, while dialing down expectations for Federal Reserve interest rate cuts. Anxiety about inflation is especially acute in Asia and Europe because of their dependencies on energy imports. The risks look like a “textbook supply‑side shock,” which could bring higher inflation, tighter financial conditions, weaker real incomes, and lower growth, according to a recent note by Daleep Singh, the chief global economist at PGIM Fixed Income.
Tech vs. Turmoil: Taiwan’s stock exchange had been steadily climbing on booming global interest in artificial intelligence. Many of Taiwan’s biggest companies make equipment for the data centers and computer chips that power A.I., including Taiwan Semiconductor Manufacturing Company, which makes chips for Apple and Nvidia.
This week, TSMC’s Taiwan-listed shares have dropped sharply and were down more than 3 percent on Wednesday. In South Korea, market losses were likewise driven by companies that had been riding high on optimism about A.I., including the tech conglomerates Samsung Electronics and SK Hynix. Samsung dropped more than 11 percent and SK Hynix about 9 percent on Wednesday.
River Akira Davis covers Japan for The Times, including its economy and businesses, and is based in Tokyo.
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