Asian equity markets opened the final week of March with broad declines as the U.S.-Israeli conflict with Iran entered its fifth week without a ceasefire or a credible pathway to reopening the Strait of Hormuz. The KOSPI led regional losses, tracking a Wall Street technology sell-off that reflected growing concern about the war’s economic impact. Japan’s Nikkei 225 and TOPIX both retreated, while Hong Kong’s Hang Seng index fell as Chinese growth prospects dimmed under the weight of elevated energy import costs. India flagged slower GDP growth and a wider fiscal deficit as rising fuel prices added fiscal pressure on a government that has been subsidizing energy costs to shield consumers.
Oil prices remained above $100 per barrel, with Brent crude heading for its largest monthly gain on record. The IEA’s strategic reserve release of 400 million barrels has provided limited relief, and analysts warn that the buffer is depleting rapidly. TD Securities’ McKay warned that as inventory buffers erode, the physical tightness seen initially in Asia will begin to cascade globally, pushing crude and refined product prices higher until demand destruction takes hold. The LNG market is in even more acute distress, with Asian spot prices surging more than 140% following the Iranian strike on Qatar’s Ras Laffan facility, damage that analysts estimate will require three to five years to fully repair.
The regional economic impact is becoming quantifiable. India’s government has taken “a huge hit on tax revenue” by absorbing fuel price increases rather than passing them through to consumers, a fiscal choice that widens the deficit but protects near-term consumption. Japan’s economy, already contending with above-target inflation and a weak yen, faces additional cost pressures that could undermine the spending-driven recovery Takaichi’s government has been pursuing. South Korea’s manufacturers, including the semiconductor and petrochemical sectors, are managing elevated input costs that compress margins even as end-market demand for AI chips remains strong.
Central banks across the region face an increasingly difficult policy environment. The Bank of Japan had been gradually normalizing monetary policy through incremental rate increases, but imported energy inflation now runs counter to the domestic consumption weakness that argues for continued accommodation. The Reserve Bank of India, which had delivered 125 basis points of rate cuts through early 2026, may need to pause or reverse course if oil-driven inflation feeds through to headline CPI. The Bank of Korea confronts a similar dilemma, with growth headwinds from energy costs competing with inflationary pressures that constrain further easing.
The semiconductor sector, which had been the primary driver of Asian equity market performance through the first quarter, has shown resilience but is not immune. Samsung Electronics and SK Hynix continue to benefit from strong HBM pricing and AI-driven demand, but elevated energy costs at fabrication facilities and the risk of supply chain disruptions from broader economic stress are being factored into forward estimates. TSMC, which sources some of its energy from imported LNG, has not reported production disruptions but has acknowledged monitoring the situation closely. The question for the semiconductor sector is whether the AI demand cycle is strong enough to offset the macro headwinds generated by the energy crisis.
Samsung-backed AI chip firm Rebellions announced a $400 million funding round ahead of its planned IPO, a signal that private capital continues to flow into the AI semiconductor space even as public markets contend with heightened volatility. The round positions Rebellions as one of the most heavily funded AI chip startups in Asia and underscores investor conviction that the AI hardware cycle has structural momentum that extends beyond the current period of uncertainty.
The first quarter of 2026 began with record-setting equity performance across the region and is closing with markets reassessing the assumptions that drove those gains. The structural investment themes that defined the January-February advance, AI-driven semiconductor demand, Japan’s fiscal expansion under Takaichi, China’s Five-Year Plan priorities, and India and Southeast Asia’s growth trajectories, remain relevant as medium-term frameworks. The near-term overlay of an energy crisis with no clear resolution timeline has imposed a risk premium on regional assets that will not dissipate until the Strait of Hormuz is reopened and oil prices stabilize. The coming weeks will test whether the supply buffers and policy responses deployed by Asian governments can hold until diplomatic or military developments resolve the underlying conflict.
