Asian equities retreated from record levels on Thursday, as a sharp rally in oil prices and renewed geopolitical tensions in the Strait of Hormuz overshadowed strong corporate earnings and upbeat economic data. The pullback was led by Japan's Nikkei, which failed to hold the psychologically important 60,000 level, and broader regional indices that gave back recent gains.
Oil Surge and Geopolitical Jitters
Brent crude advanced approximately 1.4% to $103.3 per barrel, its highest in months, following unconfirmed social-media reports of a strike on Iran. The Strait of Hormuz, a critical chokepoint for about 20% of global oil flows, remains a flashpoint, with traders pricing in heightened risk. The rise in energy costs has reignited concerns about inflation and its potential impact on corporate margins and consumer spending.
Japan's Nikkei Fails at 60,000
Japan's Nikkei 225 index closed down 0.75% at 59,140.23, after briefly touching an intraday high of 60,013.98. The broader Topix index fell 0.76%. The retreat was driven by profit-taking in AI-linked stocks such as SoftBank Group and Advantest, which had powered the recent rally. Market participants noted that weakness in U.S. futures prompted investors to lock in gains. Hiroyuki Ueno of Sumitomo Mitsui Trust Asset Management commented that the Strait of Hormuz is "not completely open," keeping oil prices elevated and capping further upside for the Nikkei.
Broader Asia Declines
MSCI's broad Asia-Pacific index excluding Japan shed 0.5%, stepping back from its recent all-time high. Hong Kong's Hang Seng index fell 1.1%, while China's CSI 300 dropped 0.8%, underscoring the choppy nature of the region's recovery. The retreat was notable given that Wall Street had closed at fresh highs overnight, with the S&P 500 and Nasdaq recording record closes on upbeat corporate earnings.
South Korea Shines on Strong GDP and SK Hynix Earnings
In contrast to the broader weakness, South Korea's Kospi index touched a new high earlier in the session. The country's economy expanded 1.7% in the first quarter, handily beating expectations, driven by a 5.1% surge in exports fueled by robust demand for semiconductors. SK Hynix, a key player in the AI memory chip market, reported a fivefold jump in quarterly profit and noted that orders for its high-bandwidth memory chips have already exceeded production capacity. The strong data underscores the resilience of the tech-driven export sector.
European Markets Follow Suit
European equities also edged lower as the session progressed, with the STOXX 600 slipping 0.2%. Germany's DAX lost 0.2%, while London's FTSE 100 dropped 0.5%. Energy stocks were a standout, gaining on the back of rising crude prices. The cautious mood in Europe mirrored the sentiment in Asia, as investors weighed the implications of higher oil costs against a backdrop of solid earnings.
Geopolitical Risks and Market Fragility
Analysts highlighted the fragile state of markets, with Charu Chanana of Saxo noting that "markets look very on edge." The sense of fragility was evident as stocks slipped and oil jumped on unconfirmed chatter, only to reverse later. Investors face a real risk that the ceasefire in the region could prove fleeting. U.S. President Donald Trump announced this week that the U.S. would continue the truce while waiting for a proposal from Iran, but Tehran has not formally backed any extension. HSBC downgraded Indian stocks to "underweight," warning that pricier crude might trigger earnings cuts and diminish India's appeal compared to Northeast Asia.
Outlook
The list of risks is growing, as Laura Cooper of Nuveen pointed out, with resolutions remaining elusive. Traders continue to stick with AI plays for now, but each shift in oil and every headline out of Hormuz keep pressure on how much risk investors are willing to hold between sessions. The coming days will be critical in determining whether the pullback is a temporary pause or the start of a deeper correction.
