Asia Stocks Plunge 5% Amid U.S. Iran Tensions

Asia stock markets experienced a significant decline on Monday, as investor sentiment turned cautious following the U.S. airstrikes on Iranian nuclear sites over the weekend. The strikes raised concerns about potential retaliation from Iran, leading to a mixed performance across Asian equity markets. The uncertainty surrounding Iran's response to the U.S. actions contributed to a wary investor sentiment, with many anticipating further escalation in the conflict.

The geopolitical tensions sparked by the U.S. strikes also had an impact on global markets. Oil prices climbed, reflecting concerns about potential disruptions in energy supply. The dollar strengthened as investors sought safe-haven assets amid the mounting geopolitical risks. The U.S. currency gained against the euro and most major foreign-exchange peers in Asia trading. Treasuries dipped, reversing an earlier gain, as the bombing fueled demand for safety and angst about energy supply.

Market analysts noted that while the initial reaction to the conflict had been relatively muted, the situation could change rapidly depending on Iran's response. Some analysts expected a limited risk-off sentiment, while others warned of potential broader implications if Iran took steps such as blocking the Strait of Hormuz or attacking U.S. forces in the region. The Strait of Hormuz is a key passage for oil and gas shipments, and any disruption could significantly impact global energy markets.

Iran has vowed to impose "everlasting consequences" for the bombing and has reserved all options to defend its sovereignty. Meanwhile, Israel resumed its assaults, targeting military sites in Tehran and western Iran. The escalating conflict has raised questions about the safety of U.S. assets and whether they can still command a safe-haven premium.

Despite the geopolitical uncertainties, some market participants had been preparing for a worsening conflict. The MSCI All Country World Index had pulled back since Israel attacked Iran earlier this month. Fund managers had reduced their stock holdings, shares were no longer overbought, and hedging demand had increased, meaning a deep selloff was less likely at these levels. However, the situation remained fluid, with analysts closely monitoring developments and adjusting their strategies accordingly.