Asian equities fell on Tuesday as doubts over a Middle East ceasefire weighed on risk appetite, offsetting optimism around artificial intelligence funding and potential listings.
MSCI’s Asia-Pacific index excluding Japan slipped 0.6% after a volatile open.
South Korea’s KOSPI fell as much as 3.3%, while Japan’s Nikkei 225 declined 1.9%. S&P 500 e-mini futures were down 0.5%, pointing to a softer start on Wall Street.
The session reflected a familiar split in global markets: investors remain willing to back the AI trade, but not without taking profits when geopolitical risks flare.
Concerns over the durability of ceasefire efforts in the Middle East kept traders cautious, even as fresh AI-related developments offered support to parts of the technology sector.
Ceasefire doubts weigh on sentiment
Traders were weighing renewed geopolitical uncertainty against continued enthusiasm for AI-linked companies.
An analyst at IG in Sydney said that the move was not a re-rating of the AI trade, but rather profit-taking after a sharp rally.
The analysts also pointed to repeated false starts in ceasefire talks since April, saying the latest lack of progress had strengthened the market’s wait-and-see stance.
That caution was visible across regional benchmarks. South Korean equities were among the hardest hit, with technology heavyweights Samsung Electronics and SK Hynix swinging between gains and losses.
Japanese shares also retreated as investors cut exposure after recent gains.
Oil eases but risks remain
Brent crude fell 0.6% to $94.45 a barrel after Lebanon announced a partial ceasefire between Hezbollah and Israel on Monday.
The move retraced some of the previous session’s gains, which had followed reports that Tehran had halted indirect negotiations with the US.
Markets remain wary of US-Iran talks aimed at ending a three-month conflict, given the fragility of earlier ceasefire efforts.
Energy prices have become a key channel through which Middle East risk is feeding into broader markets, with higher crude prices threatening to complicate inflation and interest-rate expectations.
Wall Street data offers some support
US equities had offered a more constructive signal overnight. The S&P 500 closed 0.3% higher after the ISM manufacturing purchasing managers’ index rose to 54.0 in May from 52.7, beating expectations and reaching its highest level in four years.
The businesses may have front-loaded orders because of rising prices and shortages linked to the war with Iran.
That helped reinforce the view that parts of the US economy remain resilient, even as investors continue to assess the impact of higher energy costs and geopolitical disruption.
David Rosenberg of Rosenberg Research said the equity market was clearly in “boom mode,” pointing to a nine-week winning streak last seen in late 2023.
AI optimism limits the damage
AI remained a counterweight to the broader risk-off tone. Suppliers across Asia drew support after Anthropic confidentially filed for a US initial public offering that could attract a trillion-dollar valuation.
Alphabet shares slipped 0.7% in after-hours trading after the company said it plans to raise $80 billion through equity offerings, including an investment from Berkshire Hathaway, to fund AI infrastructure expansion.
The developments underscored how capital continues to flow into AI infrastructure, even as investors become more selective after a strong run in technology shares.
For Asian chip and hardware suppliers, the AI investment cycle remains a major source of support.
Korea’s policy outlook turns tighter
South Korea’s market was especially volatile after inflation accelerated in May to its highest level in more than two years. The data strengthened expectations that the Bank of Korea may raise interest rates next month.
The central bank last week signalled a shift towards a more restrictive stance, aimed at curbing inflation and supporting the won.
That prospect added another layer of pressure on domestic equities, particularly rate-sensitive sectors.
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