Once again regional markets spin around and back to the issues of geopolitics, oil prices and interest rates, the themes that have been weighing heavily on the minds of investors for that past weeks.
Asian and Australian financial markets ended the week to navigating the combination of geopolitical uncertainty, elevated borrowing costs and shifting expectations for global monetary policy. Equity markets showed pockets of resilience, while currencies remained sensitive to the US dollar and commodity prices reflected competing concerns about supply disruptions and global demand.
The week’s trading was shaped by uncertainty surrounding the conflict involving Iran, volatile crude oil prices and concerns about persistently high government bond yields. Although equities recovered in parts of Asia towards Friday, international investors remained cautious about the outlook for technology shares and the sustainability of recent market valuations.
Foreign investors continued to withdraw funds from Asian equities, although the pace of selling moderated. According to MUFG Research, net foreign equity outflows from Asian markets eased to US$7.6 billion during the week, from US$11.5 billion previously. South Korea experienced the heaviest selling, followed by Taiwan and India, while Southeast Asian markets also recorded modest outflows.
North Asia: Hong Kong rebounds as Chinese technology shares struggle
North Asian markets delivered mixed results, with China’s domestic exchanges and Hong Kong diverging despite both being influenced by concerns over technology valuations and the economic outlook.
China’s Shanghai Composite edged up approximately 0.1% on Friday, while the CSI 300 gained around 0.2%. However, the CSI 300 fell almost 1% over the shortened trading week, extending a losing streak to nine consecutive weeks. Selling pressure in artificial intelligence-related supply-chain stocks contributed to the weakness, leaving the benchmark near its lowest level in more than a year.
Hong Kong performed better. The Hang Seng Index jumped 1.79% on Friday, finishing the session at approximately 24,211 points, and recorded a weekly gain of about 1%. Major internet companies, including Alibaba, Tencent and Xiaomi, helped drive the rebound. Investors were attracted by gains in large technology companies even as doubts about the commercial returns from substantial AI investment weighed on other parts of the sector.
Japan’s Nikkei 225 slipped 0.02% on Friday, ending at approximately 69,031 points, while the broader Topix rose 0.33%. Japanese technology-related stocks faced pressure from concerns about AI valuations, while the yen’s weakness and movements in bond yields remained important considerations for investors.
South Korea and Taiwan were closed on Friday for public holidays, limiting the ability of investors to assess the latest developments in the region’s semiconductor-heavy markets. This was significant because both markets had experienced substantial foreign selling during the week.Singapore shares under pressure
Singapore under pressure
Southeast Asian equity markets faced a more challenging environment. Despite the buzz of hosting the latest round of the Formula 1 Grand Prix season, Singapore emerged as a particular weak spot.
Singapore’s Straits Times Index slipped 0.20% on Friday to approximately 5,402 points. Despite recovering from a larger intraday decline, the index was heading towards a weekly loss of almost 4%, its weakest performance since early April. Concerns about elevated bond yields and their potential implications for bank earnings contributed to the pressure on financial stocks, including DBS Group.
Across emerging Asia, equities recovered modestly on Friday following the previous session’s sell-off. The MSCI emerging Asia equities index gained approximately 0.5%, although the broader weekly picture remained subdued. Foreign investors continued to reduce exposure to regional equities, with MUFG reporting modest outflows from ASEAN markets.
For Southeast Asian economies, the direction of crude oil prices remains particularly important. Higher energy costs can increase inflation and import bills for oil-importing economies, while benefiting producers. The resulting differences in national economic exposure make regional equity performance sensitive to both commodity prices and exchange-rate movements.
ASX 200 gains, but smaller companies lag
Australia’s sharemarket finished the week modestly higher, supported by large companies and a Friday rebound in technology and consumer-related stocks.
The S&P/ASX 200 rose 0.40% over the week to close at 8,716.6 points. The All Ordinaries gained 0.26%, but the Small Ordinaries fell 1.34%, highlighting the uneven nature of the advance. Real estate investment trusts led the major sectors with a weekly gain of 3.73%, while information technology fell 1.97%.
Small Caps
On Friday, the ASX 200 advanced 0.64%, with technology shares recovering and consumer discretionary stocks also performing strongly. However, uranium and lithium producers remained under pressure, while the decision by data-centre operator Firmus to shelve its planned A$5 billion initial public offering highlighted the difficulties of attracting investors amid market volatility and elevated financing costs.
The Australian dollar provided a brighter signal. It rose 0.67% over the week to approximately US$0.6985, suggesting that the currency was able to make gains despite continuing global uncertainty. Australia’s government bond yields remained elevated, with the 10-year yield around 5.40% at the end of the week.
Dollar strength remains a regional headwind
Foreign exchange markets continued to reflect expectations for US monetary policy and uncertainty about inflation. Most Asian currencies traded relatively quietly on Friday, while the US dollar remained on course for a fourth consecutive weekly gain, according to market reporting. The yen weakened slightly following disappointing Japanese household spending data.
For Asian exporters, a weaker domestic currency can improve price competitiveness, but it also increases the local-currency cost of imported energy and other dollar-denominated inputs. Investors will continue to monitor US Treasury yields and forthcoming inflation data for clues about the dollar’s direction.
The Australian dollar’s weekly appreciation was a notable exception to the broader regional pressure, although further gains will depend on global risk appetite, commodity demand and expectations for Australian interest rates.
Oil volatility and stronger precious metals
Commodity markets remained unsettled. Brent crude finished Friday at US$104.72 a barrel, while West Texas Intermediate settled at US$91.85. Both benchmarks rose on Friday as Hurricane Isaias forced substantial production shutdowns in the Gulf of Mexico, and both were on track for weekly gains. Geopolitical risks involving Iran and disruptions to shipping through the Strait of Hormuz continued to underpin prices.
Gold also attracted interest. It rose more than 1% in Friday trading, supported by a softer US dollar and continuing demand for defensive assets. Australian market data put gold at US$4,194.95 an ounce for the week, a gain of 0.37%. Copper advanced 1.30% to US$6.60 a pound, offering a more positive signal for industrial metals despite concerns about China’s growth outlook.
Outlook
The week ended with a divided picture: Hong Kong and Australia recovered, China’s domestic equities remained weak, and Singapore struggled with concerns about financial-sector earnings. Currency movements continued to reflect US interest-rate expectations, while oil’s geopolitical risk premium complicated the outlook for inflation and economic growth.
For the coming week, investors will focus on US inflation data, Chinese economic indicators, corporate earnings and developments in the Middle East. The key question is whether the latest equity rebound can broaden beyond selected markets and large companies, or whether elevated borrowing costs and uncertainty over AI investment will continue to constrain risk appetite.
