2 Insulated Markets as Asia Oscillates on Oil
Price gyrations in East Asian equities have been massive since the start of the Iran conflict, but two defensive Asia Pacific plays are protected from geopolitical risks.
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Outsized market moves in either direction are the norm as the U.S. war in Iran continues to produce rapid shifts in sentiment from day to day.
Tuesday is a recovery day in Asia. Equities are rallying almost across the board, with particularly large gains in East Asia, after heavy selling on Monday.
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The frankly crazy current market conditions in South Korea continue. The benchmark Kospi is up 5.4% for Tuesday, with daily swings of that kind of magnitude ever since the U.S. attack on Iran began on February 28.
Despite the green on the screen today in Asia, the region’s equity markets are still down significantly since the conflict began. Not only is Asia the home to many multinational exporters but it also imports the vast majority of its oil.
Drivers From Outside the Region
It makes it very hard to predict how Asian markets might move each day.
The dramatic moves have little to do with fundamentals for Asia-based companies. Commodities traders are essentially making bets on how long the Iran conflict and oil disruption will last. Those are highly speculative calls, with limited information about the situation on the ground in Iran itself.
On Tuesday trade in Tokyo, the exporter-heavy Nikkei 225 is up 2.9%, with the broad-market Topix not far behind with a gain of 2.5%.
Japan and Korea are still well below their level at the end of February, despite Tuesday’s surge. Korean equities, this year’s major outperformers, are down 11.4% since Friday February 27, while the Nikkei in Tokyo is down 7.8% in the same timeframe.
Oil Shoots Up, Then Gets a Reprieve
Tuesday’s Asia rally can be traced to the sharp fall in the price of oil. Crude shot up to US$119 per barrel during Asian trade on Monday, the highest price since 2022, only to fall back to US$84 as I write. That easing stems in part from the International Energy Agency (IEA) meeting with G7 nations to decide on whether to release millions of barrels of crude held in emergency reserve.
We don’t yet know the upshot of this second meeting on oil reserves. The first ended without a specific conclusion, and plenty of geopolitical noise that G7 finance ministers “stand ready” to tap oil stocks, while the IEA says it is “ready to act” to support market stability.
Iran continues to threaten oil tankers passing through the Strait of Hormuz with drone attacks and missile strikes. That has created a bottleneck in a marine route that normally sees around 20% of the world’s oil and gas shipments passing through the strait.
Asia in Particular Relies on Strait of Hormuz
The figure is magnified for Asian nations. Japan imports all its oil, for instance, with around 70% of it coming through the Strait of Hormuz.
If we exclude the Middle East – often technically grouped into Asia – only a handful of Asian nations extract oil. China, Indonesia, India, Malaysia and Australia lead that pack, but even the oil extractors cannot meet their own domestic demand.
We are only starting to see the impacts that higher raw-material and energy costs will have. While the U.S. government is confident the conflict will be short-lived, the spillover effects may ripple through the rest of certainly this quarter if not the rest of the year.
Asian governments are attempting to respond. For instance, South Korea and Thailand have both announced that they will temporarily cap fuel prices. The Philippines has switched most government functions to a four-day work week and is looking at other energy-saving measures.
Australia and China Insulated
Investors seeking out safe havens at this uncertain time would do well to consider equities in resource-rich Australia as well as well-diversified China.
Aussie stocks are down “only” 5.5% since the end of February. They are underpinned by an economy that hardly ever enters recession, and just recorded its 17th straight quarter of growth for Q4 2025, leaving Australia with economic growth of 2.6% last year.
Australian mining stocks initially held the market in good stead in the face of the Middle East conflict. But there’s mounting concern that coal shipments to major customers in Asia could be disrupted. And surprisingly gold has taken a hit since the start of the conflict for a variety of factors: it’s priced in U.S. dollars, which has strengthened; interest rates may stay higher if oil is high, to combat inflation, raising the opportunity cost on non-yielding gold; and investors have been selling high-performing assets, including gold, to meet any margin calls.
The two main U.S.-listed exchange-traded funds (ETFs) concentrating on Aussie equities are the iShares MSCI-Australia ETF (EWA) , posting a 10.0% gain year to date, and the Franklin FTSE Australia ETF (FLAU), up 8.0% in 2026. That’s despite an Iran war-inflicted 3.2% dip in EWA and 4.4% for FLAU.
China Leads World in Renewables
China may be the world’s largest oil importer, but it has a particularly large stockpile of oil reserves, equivalent to around 3.5 months of oil usage. China also gets a whopping 35.6% of its energy needs from renewable sources, with the world’s largest installed capacity for hydro, solar and wind power.
Poor prospects for China’s overall growth, as I discussed in my last story, had been hurting Chinese stocks so far this year. But they are little-changed since the start of the Iran war.
Investors looking to concentrate on China’s domestic economy could consider the Global X MSCI China Consumer Discretionary ETF (CHIQ), which has dipped 2.0% since the end of February but should be supported if China’s consumer prices – up 1.3% for February year on year – continue higher after months of stagnation.
China tech has followed the pattern of selling off hard. The KraneShares Hang Seng Tech Index (KTEC) , which I recommended as a play for 2025, gained 18.9% in 2025. But it is now down 11.9% in 2026, a result of the general correction in Chinese stocks since October.
Still, KTEC is actually up 0.8% since the start of the Iran war. Likewise, the KraneShares CSI China Internet ETF (KWEB) is up 1.0% since the February 27 close. They’ve held up well in March.
Mainland markets are likely to continue to offer a relative safe haven due to China’s energy reserves and the likelihood of state intervention to support the economy. Chinese investors also have fewer options as to where to invest, suggesting “stickier” money will remain in A share markets.
We can contrast how KTEC and KWEB have held up with other Asian tech plays. My stock call in Asia for 2026, the chip-testing equipment maker Advantest (T:6857) is up 13.7% year to date but has suffered a 10.3% correction essentially due to Japan’s oil disruption.
Similarly, the two largest components in South Korea are suffering from the conflict. SK Hynix (KR:000660) is down 11.6%, and Samsung Electronics (KR:005930), is down 13.2% since the end of February, even if they have driven the Korean market to a world-leading 31.3% advance so far this year.
Related: Six Things Most Investors Should Be Doing Now — But Aren't
At the time of publication, McMillan was long position KTEC.
