Key Points
- MSCI Asia-Pacific index excluding Japan falls about 1 per cent
- Japan’s Nikkei and South Korea’s KOSPI lose more than 1 per cent
- Brent trades above $101 as Middle East supply risks intensify
- Pakistan stocks remain under pressure amid higher oil and inflation risks
ISLAMABAD: Asian stocks fell sharply on Thursday as a renewed surge in oil prices intensified inflation concerns and rising bond yields increased fears that central banks may have less room to cut interest rates.
The MSCI Asia-Pacific index excluding Japan fell about 1 per cent, while Japan’s Nikkei and South Korea’s KOSPI each declined by more than 1 per cent. Australia’s S&P/ASX 200 also fell, while Hong Kong futures pointed to further weakness.
The sell-off followed losses on Wall Street, where the S&P 500 fell 0.5 per cent on Wednesday, the Dow Jones Industrial Average declined 0.8 per cent, and the Nasdaq Composite dropped 0.6 per cent. Investors have become increasingly cautious as the renewed oil shock threatens to keep inflation elevated.
Brent crude rose above $100 a barrel for the first time since July, reaching about $101.4 in Asian trading after gaining 3.4 per cent on Wednesday. West Texas Intermediate crude also remained close to $96 a barrel.
The escalating conflict in the Middle East has jacked up oil prices, and concerns have grown over energy supplies and shipping through key regional routes.
The possibility of prolonged disruption has raised fears that higher energy costs could feed into consumer prices across major economies.
Higher oil prices are particularly worrying for financial markets because they can create a difficult combination of slower economic growth and persistent inflation.
Central banks could then face pressure to keep interest rates higher for longer, even as economic activity weakens.
Bond markets have already reflected those concerns. The US 10-year Treasury yield was around 4.84 per cent on Thursday after reaching its highest level since 2023 in the previous session.
Higher yields increase borrowing costs for companies and households while reducing the relative attraction of equities.
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Investors are also awaiting fresh US inflation data, including producer and consumer price readings, for clues about the Federal Reserve’s next interest-rate decision.
Any evidence that energy costs are feeding into broader inflation could strengthen expectations for a less accommodative monetary-policy stance.
Pressure on Pakistani stocks
The pressure is also being felt at the Pakistan Stock Exchange, where the benchmark KSE-100 opened Thursday in the red after losing 698.57 points, or 0.41 per cent, on Wednesday.
The index closed the previous session at 171,943.59, with 293 stocks declining against 162 gainers.
Since traders were wary of external factors, the local bourse opened the Thursday session in the red, and stocks lost nearly half a percentile in the first hour of trading.
trading position should be viewed against this broader regional risk-off environment rather than in isolation.
Higher global oil prices pose an additional challenge for Pakistan because the country depends heavily on imported energy. Sustained crude-price increases put additional pressure on the import bill, inflation and the external account.
The inflation channel is particularly important for domestic equities. Higher fuel and transportation costs can raise operating expenses for businesses. A renewed increase in domestic inflation could constrain the scope for monetary easing and keep financing costs elevated.
Pakistani stocks have also seen heightened geopolitical uncertainty following the escalation of the US-Iran conflict and disruption risks around major oil and shipping routes.
For investors, the immediate focus is likely to remain on the trajectory of crude prices, developments in the Middle East, global bond yields and upcoming inflation data.
A sustained rise in oil prices could keep pressure on equities by reinforcing expectations of higher-for-longer interest rates.
Conversely, easing geopolitical tensions or restored energy flows could quickly reduce the inflation premium embedded in oil and bond markets, providing some relief to regional stocks, including the Pakistan Stock Exchange.
