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Asian stock markets tumbled on Monday after a sharp escalation in the conflict in West Asia sent crude oil prices soaring and reignited fears of a fresh bout of global inflation, with South Korea’s benchmark Kospi plunging 6 per cent as investors rushed to cut exposure to technology stocks.
The selloff came after Iran claimed it had closed the Strait of Hormuz following fresh
attacks involving the United States and Gulf states, raising concerns over disruptions to one of the world’s busiest oil shipping lanes. The development triggered a broad risk-off sentiment across global financial markets, lifting the US dollar and Treasury yields while weighing on equities, gold and other risk assets.
Brent crude futures jumped more than 4 per cent to $79.11 a barrel, extending a sharp rebound from last week’s low of around $70. US West Texas Intermediate crude also climbed more than 4 per cent to $74.37 a barrel, raising concerns that higher energy prices could complicate the global inflation outlook.
The surge in oil prices comes at a time when investors are closely watching US inflation data and the Federal Reserve’s policy path. Markets have increased bets that the central bank may have to tighten monetary policy further if higher energy costs begin feeding into consumer prices.
The biggest casualty of Monday’s selloff was South Korea, where the Kospi index slumped 6 per cent to 7,031, extending its decline to more than 25 per cent from its June peak and pushing the benchmark firmly into bear market territory.
The correction was driven by heavy selling in semiconductor stocks, which have been at the heart of this year’s artificial intelligence-led rally. Memory chip giant SK Hynix tumbled around 10 per cent, while Samsung Electronics dropped more than 6 per cent. Together, the two companies account for nearly half of the Kospi’s market capitalisation, magnifying the impact on the broader index.
The latest decline follows an almost 8 per cent fall last week, as investors grew increasingly concerned that valuations in AI-related semiconductor stocks had become stretched after months of spectacular gains.
Analysts say South Korea has become a key global barometer for investor sentiment towards the artificial intelligence trade. While earnings upgrades for Korean companies have continued for more than a year, questions are emerging over whether the pace of AI infrastructure spending can be sustained.
Bank of America analysts recently warned that the AI investment boom is beginning to erode free cash flow at major global technology companies, with hyperscale cloud providers collectively spending about $234 billion this year. That has fuelled concerns that the market may be underestimating the financial cost of the AI race.
Despite the sharp correction, the Kospi remains the world’s best-performing major stock market in 2026, having gained around 63 per cent so far this year before the recent selloff. The rally has largely been driven by soaring memory chip prices and strong demand for advanced semiconductors used in artificial intelligence applications.
Elsewhere in Asia, Japan’s Nikkei fell 1.6 per cent, while MSCI’s broadest index of Asia-Pacific shares outside Japan declined nearly 1 per cent.
The weakness spilled over into Indian markets as well. The BSE Sensex fell over 270 points in early trade, while the NSE Nifty slipped below 24,150 as investors weighed the implications of higher crude prices for India’s inflation and current account balance.
Technology stocks offered some support to domestic benchmarks, with Tata Consultancy Services and HCL Technologies trading higher following earnings optimism. However, losses in financials, automobiles, metals and consumer stocks kept the broader market under pressure.
The surge in oil prices also pushed US Treasury yields higher, strengthening the dollar as traders increased expectations of another Federal Reserve rate hike. According to CME FedWatch data, markets are now assigning a significantly higher probability of a September rate increase than they did a week ago.
Investors will closely monitor Federal Reserve Chair Kevin Warsh’s first testimony before the US Congress later this week, along with US consumer price index, producer price index and retail sales data, for fresh signals on inflation and the interest rate outlook.
Meanwhile, safe-haven gold failed to benefit from the geopolitical tensions as higher bond yields and a stronger dollar outweighed demand for the precious metal. Spot gold fell more than 1 per cent to around $4,059 per ounce, while silver, platinum and palladium also declined.
For markets, the immediate focus remains on developments in the Gulf. Any prolonged disruption to shipping through the Strait of Hormuz could further tighten global energy supplies, intensify inflationary pressures and increase volatility across equity, currency and commodity markets.
