Asian stock markets experienced a sharp decline on Monday, driven by concerns over a potential US economic downturn, continued weakness in Japanese equities, and escalating geopolitical tensions in the Middle East.
Across the region, several major indexes reached troubling milestones. Japanese markets, alongside technology-heavy indices in Taiwan and South Korea, were particularly hard hit, with their benchmarks falling more than 7% each. The MSCI Asia Pacific Index plummeted by up to 4.3%, nearing a technical correction and threatening to erase all of its year-to-date gains.
Taiwan Semiconductor Manufacturing Co., a major regional player, was on course for a record drop, while financial and industrial stocks also contributed to the downward pressure on the regional benchmark.
The retreat from risk assets has been exacerbated by recent weak economic data from the US, raising fears that the Federal Reserve might need to adopt a more aggressive monetary policy to stave off a potential recession. Additionally, mounting tensions in the Middle East, including threats of retaliation from Iran and regional militias following recent high-profile assassinations, have further dampened investor sentiment.
“This appears to be a broad-based retreat from global equities, with profit-taking occurring in previously strong sectors and regions,” commented Vey-Sern Ling, managing director at Union Bancaire Privee.
In Japan, both the Topix and Nikkei 225 indexes fell by over 8%, driven by a stronger yen, tighter monetary policies, and broader concerns regarding the US economy. These declines have pushed the two indexes into bear market territory, with losses exceeding 20%.
South Korea’s Kospi Index also fell more than 7%, reflecting a shift away from technology-heavy markets. The Kospi has now dropped over 10% from its peak in July, signaling a potential technical correction.
Trading was briefly suspended in Japan’s Topix futures and South Korea’s Kospi following sharp declines, with circuit breakers and trading halts put in place to manage the volatility.
“Market sentiment is expected to remain fragile as investors weigh the possibility of a US economic soft landing against the risk of a recession. The next significant indicator will be the upcoming labor market report,” noted Chetan Seth, an Asia-Pacific equity strategist at Nomura Holdings Inc.
