Investors are uneasy because of Middle East tensions

During the morning session of October 2, a series of Asian stock markets went down. Nikkei 225 index (Japan) decreased 1.6%. Kospi (South Korea) lost 0.2%, at one point down 1.3%.

Australia’s S&P/ASX 200 fell 0.3%. The MSCI Asia-Pacific index lost 0.5%. Similarly, Malaysian, Thai, and Indonesian stocks were also in the red. Mainland China and Hong Kong markets are closed for holidays.

This development is similar to Wall Street on October 1. The S&P 500 index at one point fell 1.4%, then closed the session with a loss of 0.9%. The Nasdaq Composite also lost 2.3% at one point, before closing down 1.5%. DJIA fell 0.4%.

Risk assets were sold off as tensions in the Middle East increased. Iran launched a missile attack on Israel to avenge the death of the leader of Hezbollah and Hamas. Israel’s Defense Ministry estimated Iran launched more than 180 ballistic missiles, while the Pentagon said Tehran fired nearly 200 projectiles.

In the past, political instability, such as Russia’s military campaign in Ukraine in 2022, often caused large but short-term market fluctuations. During these events, investors also sold off risky assets and rushed to buy haven tools.

However, the market’s reaction this time also depends on Israel’s response and the level of escalation of the conflict between the two economies. Israeli Prime Minister Netanyahu warned that Iran made a “serious mistake” and will pay the price.

“The market is very sensitive to any signal that the situation could get worse,” said Hasnain Malik – Director of equity strategy for early and emerging markets at Tellimer. Reuters.

In April, Iran launched missiles at Israel for the first time in history. However, these missiles were intercepted. Israel then also launched an air strike against Iran. Stocks and other risky assets sold off, but recovered within days as tensions did not escalate.

“If the war heats up this time, this is definitely not good news for the markets,” said Allan Small – senior investment advisor at Allan Small Financial Group.

Another concern of investors is oil prices. The Middle East is one of the world’s key crude oil producing regions. Iran is currently the third largest oil producer in OPEC (Organization of Petroleum Exporting Countries). Political tensions can therefore disrupt supply, driving up the price of this product.

Brent oil increased 2.6% to 73.5 USD a barrel. US crude oil WTI added 2.4% to 69.8 USD. Currently, prices continue to go up, with both increasing by 1.4%.

Shelter tools also increased in price. World gold price increased by 30 USD, to 2,664 USD per ounce. Currently, each ounce revolves around 2,655 USD.

Prices of USD, yen and Swiss franc – famous safe currencies – also went up. In particular, the US dollar recorded the strongest increase in a week, when the Dollar Index increased 0.5% to 101.2 points. Currently, each USD is exchanged for 143.4 yen and 0.84 Swiss francs.

“Political risks always overwhelm news about the economy, corporate profits or central banks’ reactions, because political fluctuations are more unpredictable. The situation is still uncertain, any response to Any relief or tension from Israel and Iran can greatly impact investment psychology,” concluded Chris Weston – Research Director at Pepperstone.