Southeast Asian financial markets dropped as much as one point after an air strike by Israel on Iran Jun. His move sank stock markets across Asia. That incident was significant in escalating political tensions throughout the region. Consequently, it helped drive a huge shift in risk sentiment throughout Asian markets.
In the aftermath of the attack, Asian stocks dropped dramatically, even as investors began to see the cutting of Russian investment ties and sanctions as a major market realignment. The blast in Tehran blew parts of an apartment building across the street onto parked cars. This somber image underscores the seriousness of the crisis. Investors reacted to the increasing geopolitical risks by repositioning their portfolios leading to a sector and style agnostic sell-off.
Over the same period, many Asian currencies recorded significant depreciations against the U.S. dollar. The Japanese yen was a clear exception, turning positive by as much as 0.73%, to trade at 142.81 against the greenback. The yen is a known safe-haven currency. When geopolitical uncertainty strikes, it tends to reinforce as thousands or millions of investors flee to safety.
Most other Asian currencies remained under pressure and allowed their currencies to depreciate against the dollar. The South Korean won was the weakest, down 0.9%, with the Indian and Malaysian currencies both losing 0.4%. The Singapore dollar fell by 0.2%. Together, these declines highlight the increasing pattern of eroding faith in local currencies as political conflict has deepened in recent weeks.
The entire ordeal has even caused a rise in oil pricing, which instantly increased by around 13% after the attack. This dramatic rise underscores how sensitive the market is to geopolitical risks, especially in areas crucial to the world’s oil supply.
As the crisis deepens, observers on Wall Street and Washington have their eyes glued to what’s happening in Iran and Israel. Some are expressing concern that additional military strikes would further destabilize an already precarious market situation. The risk of escalation continues to be a major concern.