Oil prices surged Monday following renewed hostilities between the United States and Iran. Brent crude climbed as much as nearly 5% early in the day before settling up 2.3% at $77.72 per barrel, while U.S. benchmark crude added 2.1% to reach $72.92 per barrel. This escalation between the two nations, which involved the US carrying out strikes and Iran retaliating, raised concerns about the global flow of crude and potentially higher inflation, which could lead central banks like the Federal Reserve to raise interest rates.
In Asian equity markets, sentiment was mixed. Tokyo's Nikkei 225 index lost 1.9% to 67,242.73. Seoul's Kospi index declined 9% to 6,806.93, marking its lowest level since early May. This downturn in South Korea was largely driven by a rout in tech stocks, particularly memory chipmakers.
SK Hynix, a South Korean memory chipmaker, experienced a significant slump of 15.4% in Seoul, despite its American depositary shares having soared 13% on their Wall Street debut last Friday after raising approximately $26.5 billion at $149 per share. Samsung Electronics, a rival, also saw a substantial drop of 10.7%. The volatility in these chipmaker stocks reflects concerns about stretched valuations in the AI sector and the potential for oversupply, despite strong demand for computer memory driven by AI euphoria. Ipek Ozkardeskaya of Swissquote commented on the perception that the AI boom could allow the sector to remain permanently in a growth phase, but cautioned about potential market shifts.
The overall market reaction underscores worries about the impact of continued Middle East conflict on energy costs and inflation, as well as the sustainability of high valuations in AI-related stocks. Investors are now looking to upcoming earnings reports from major companies, including chip giants TSMC and ASML, and several Wall Street banks, to gauge whether corporate profits can justify current stock prices.
