Asian stocks drop on concerns over Mideast tensions, hawkish Fed

Asian stocks slid as broad risk aversion swept through markets on renewed concerns over an escalation of tensions in the Middle East and worries about higher-for-longer US rates.

Friday’s session started on weak footing after hawkish commentary from Federal Reserve officials, indicating rate cuts could be pushed back toward the end of the year if they occur at all in 2024. 

Losses deepened as Israel launched a retaliatory strike on Iran less than a week after Tehran’s rocket and drone barrage, according to two US officials, raising fears of a widening conflict across the Middle East. However, markets pared some of the risk-off moves after Iran downplayed the incident.

The MSCI Asia Pacific Index slid as much as 2.6% before paring its loss to less than 2%. Heavyweight Taiwan Semiconductor Manufacturing Co. was the biggest drag on the regional benchmark after scaling back its outlook for expansion, cautioning that the smartphone and personal-computing markets remain weak.

“Geopolitical jitters have gripped markets,” said Manish Bhargava, a fund manager at Straits Investment. “Investors are expected to exhibit greater risk aversion, resulting in heightened volatility in asset prices. The demand for safe-haven assets is likely to surge,” he said.

Taiwan’s equity benchmark closed 3.8% lower, while Japan’s Topix fell 1.9%, leading losses in key regional equity gauges. Stocks across the Asia region have tumbled nearly more than 4.5% this week, on course for their biggest weekly drop since June 2022, as worries about US monetary policy and geopolitical tensions plague risk sentiment globally.

“The market selloff is intensifying, we may trim a little further and increase cash allocations,” said Mohit Mirpuri, senior partner at SGMC Capital Pte. “We will only hold on to our core long-term holdings and would reduce the tactical plays.” –BLOOMBERG