Japan’s Nikkei 225 traded above 58,000 early this week, maintaining levels near its all-time high as multiple regional catalysts converged. China’s National People’s Congress opened on March 5, with the formal adoption of the 15th Five-Year Plan expected to set the economic framework for 2026 to 2030. The growth target of 4.5% to 5%, a record low excluding the pandemic period, was widely anticipated and had been largely priced by Chinese equity markets. The more consequential development for regional asset prices was the emerging conflict between the U.S.-Israeli coalition and Iran, which escalated dramatically on February 28 with military strikes that killed Iran’s Supreme Leader and triggered retaliatory attacks across the Persian Gulf.
Oil prices moved sharply higher in the opening sessions of March. Brent crude, which had been trading near $72 before the conflict began, surged to the $80-82 range in the first days of trading, a 10-13% increase that reflected the market’s initial assessment of supply risk. The Strait of Hormuz, through which approximately 20% of global oil and LNG flows, faced de facto closure as insurance companies withdrew coverage for commercial shipping and major operators refused to transit the waterway. The price move was significant but not yet at levels that would trigger demand destruction, leaving the market in a zone of uncertainty about whether the disruption would prove temporary or prolonged.
The Japanese equity market’s resilience at 58,000 was notable given Japan’s extreme dependence on Middle Eastern energy imports. The Nikkei’s advance reflected confidence that the conflict would be contained and short-lived, a consensus view that the first week of March would begin to challenge. Defense stocks rallied as the security environment deteriorated, partially offsetting losses in transport and energy-intensive manufacturing names. The yen, which might have been expected to strengthen as a safe-haven currency, instead remained weak as the energy import cost implications of higher oil weighed on the fundamental case for the currency.
The KOSPI held near 5,800, with semiconductor stocks providing a counterweight to the energy risk. Samsung and SK Hynix continued to benefit from the HBM pricing cycle, and the governance reform premium kept international capital anchored in Korean equities. The KOSPI had gained approximately 25% year-to-date by early March, making it the world’s best-performing major equity market for the second consecutive year. The question for Korean market strategists was whether the AI semiconductor cycle was strong enough to offset the macro headwinds that an escalating energy crisis would create for Korea’s manufacturing-heavy economy.
The NPC session provided a policy framework for China but offered limited near-term market catalysts. The Five-Year Plan’s emphasis on technological self-reliance and domestic demand expansion was consistent with existing expectations. The 4% fiscal deficit ratio and the continuation of special bond issuance provided modest support for Chinese infrastructure and property-adjacent stocks, but the broader Chinese equity market remained constrained by weak consumer confidence, property sector stress, and the emerging energy cost pressure from the Hormuz disruption. China’s large strategic petroleum reserves provided short-term cushioning, but the country imports more oil through the strait than any other nation, creating a vulnerability that the conflict was beginning to expose.
For regional allocators, early March presented a market at an inflection point. The structural themes that had driven the January-February advance, AI semiconductors, Japanese fiscal expansion, Korean governance reform, remained intact. But the Iran conflict introduced a variable that, if it escalated, could overwhelm these positive factors through the channel of higher energy costs, disrupted supply chains, and risk-off capital flows. The optimal positioning involved maintaining exposure to the strongest fundamental stories while building hedges against the energy and geopolitical risks that the following weeks would clarify. Oil futures, yen call options, and reduced leverage in energy-sensitive positions all warranted consideration.
