Asian Stocks Rise on Technology Sector Gains, Oil Prices Climb on Iran Tensions

Asian Stocks Rise Amid AI Trade, Middle East Tensions

Asian stocks surged at the open on Monday, fueled by a continued bet on the artificial intelligence trade, despite growing tensions in the Middle East. Oil prices jumped as a result, with Brent rising 3.6% to nearly $105 a barrel.

The MSCI's Asian equities gauge rose 1%, driven by a strong performance from South Korea, which jumped as much as 5% to a record. This momentum in the sector remained strong, with the Philadelphia Semiconductor Index surging to an all-time high on Friday. However, Nintendo Co. fell 9% in Tokyo after its forecast missed estimates.

Investors remained upbeat on tech despite weekend developments in the Middle East, which weighed on broader markets. The rejection of Iran's response to President Donald Trump's proposal to end the war prolonged the effective closure of the Strait of Hormuz, stoking concerns of inflation. Higher oil prices led to a rise in the 10-year Treasury yield, which increased three basis points to 4.39%.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The dollar strengthened against all its Group-of-10 peers, as investors sought a safe haven during the Middle East conflict.

Global equities have erased war-driven losses and climbed to records as investors bet on heavy spending on AI boosting corporate profits. Asian shares have benefited as traders pile into chipmakers, seen as the "picks and shovels" of the AI supply chain. The relatively modest moves outside of tech suggest that traders are pricing in an eventual de-escalation in the Middle East, although the path may be uneven.

The success of the momentum strategy – piling into recent winners – has become a defining feature across markets. Junk bonds and crypto have also been drawn in. However, Barclays Plc strategists warn that the trade has reached extremes that historically foreshadowed selloffs. Goldman Sachs Group Inc. notes that valuations for high-momentum stocks are stretched and positioning is among the highest in recent years, based on prime brokerage data.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Beyond the war, traders have a lot to parse this week, including the scheduled meeting between Trump and Chinese President Xi Jinping and US inflation data, which will offer clues on where interest rates are headed.

In currencies, the pound weakened ahead of a speech by UK Prime Minister Keir Starmer to forestall an immediate challenge to his job. Starmer will lay out a plan to turn the governing party's fortunes around, including a commitment to take the UK closer to the European Union a decade after the Brexit vote.

Meanwhile, fresh data on consumer prices in the coming week is likely to affirm inflation remains a threat in the US. Economists see a sharp 0.6% increase in the consumer price index for April, based on a Bloomberg survey median estimate. That's after March's biggest monthly advance since 2022. The Bureau of Labor Statistics' report is due Tuesday.

In Friday's report, April's nonfarm payrolls rose 115,000 after an even bigger surge in March, marking the strongest two-month increase since 2024, according to Bureau of Labor Statistics data out Friday. The unemployment rate was unchanged at 4.3%.

The Federal Reserve is viewed as likely to remain on hold for now to allow the oil price spike to play itself out. Money market pricing continues to suggest the Fed will keep rates steady this year.

As one analyst noted, traders may have been looking for at least an interim agreement ahead of Trump's visit to Beijing, but now it seems we are faced with another round of oil price gains.