Global stock markets diverged sharply on Wednesday, with a more optimistic reaction from investors in Europe and the United States, in contrast to declines across Asia.
Asian stocks plunged, with a record drop in the Seoul market, as investors spooked by rising oil prices in a region heavily dependent on imports from the Middle East.
South Korea’s Kospi plunged 12%, following a 7% drop on Tuesday. Saxo strategist Neil Wilson wrote in a note Wednesday that semiconductor companies were hit particularly hard by the decline “after a small number of large-cap chip stocks had strong gains this year.”
Elsewhere in the region, Japan’s Nikkei Stock Average fell 3.6%, while Taiwan’s TSEX 50 index, which also has heavy exposure to semiconductor manufacturers, fell 4.1%. Hong Kong’s Hang Seng closed 2% lower and China’s Shanghai Composite fell nearly 1%.
Asian economies rely heavily on Middle Eastern oil, which is shipped through the Strait of Hormuz, which is partially controlled by Iran. Transport through the waterway was effectively halted, cutting off most energy exports from other parts of the Gulf region. More than 80% of the crude oil shipped through the strait last year was bound for Asia, according to an analysis of Kpler data by the International Energy Agency.
Concerned about disruptions to global energy supplies, US President Donald Trump on Tuesday ordered the US government to “insure and insure” ships sailing in the Gulf. President Trump also said the U.S. Navy would escort tankers through the Strait of Hormuz “if necessary.”
Despite the intervention, oil and gas prices continued to rise on Wednesday.
Brent crude, the world oil benchmark, rose 1.5% in morning trading to $82.6 per barrel. The U.S. benchmark WTI rose 0.74% to $75.
In Europe, stock markets in London, Frankfurt and Paris moved into positive territory and closed sharply lower on Tuesday. U.S. futures also indicated they would open slightly higher as U.S. investors continued to ignore the potential economic impact of the war.
“The US (investors) are focused on what Trump will do, but they are underestimating Iran’s response capabilities,” Jefferies analyst Mohit Kumar said in a note Wednesday. But he added: “We remain cautious and are not ready to buy the market.”
Economists have warned that prolonged conflict in the Middle East could accelerate inflation and slow economic growth around the world. However, the United States is a net oil exporter, so the impact will be less than in Europe and Asia.
