Iran war shakes Asia, investors flee to US

March 05, 2026 (MLN): The ongoing conflict in Iran is forcing global investors to reconsider the once profitable “Sell America, Buy Asia” trade, as surging oil prices and geopolitical risks hit Asian markets disproportionately, according to Bloomberg.

Despite a rebound on Thursday, the MSCI Asia Pacific Index has dropped 6% this week, sharply underperforming the S&P 500, which declined just 0.1%,

The divergence signals a reversal in the recent rotation by global funds into Asia, with the US emerging as a haven amid a stronger dollar.

Asian stocks are particularly vulnerable due to their heavy dependence on oil shipments via the Strait of Hormuz and fears of a global economic slowdown.

Investors have been taking profits from last year’s AI-driven rally, with South Korea and Taiwan among the hardest-hit markets.

“Capital doesn’t wait for certainty it’s already rotating, and the dollar’s strength this week tells you everything about where the smart money is heading,” said Hebe Chen, senior market analyst at Vantage Global Prime.

“China, Japan, Korea, and Taiwan are pure import dependents with no buffer, making this oil shock exponentially more corrosive for the region than for the West.”

The spike in Brent crude, now in its fifth straight day of gains, is raising concerns over inflation and corporate earnings. Rising energy costs threaten to undermine Asia’s AI and technology-driven strengths.

Vantage Global Prime warns that stagflationary pressures could derail ambitious regional infrastructure and capital expenditure plans.

Asian economies such as China, India, and Indonesia are among the world’s largest oil importers. Goldman Sachs estimates that a 20% rise in Brent crude could reduce regional corporate earnings by 2%.

Japan and South Korea face heightened exposure, with over 60% of their oil imports transported via the Strait of Hormuz, while China benefits from larger reserves and access to Russian crude.

Beijing has instructed major refiners to suspend diesel and gasoline exports to secure domestic supply.

“The economic impact goes beyond oil, affecting mobility, construction, finance, and defense,” said Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis SA.

The US remains relatively insulated, benefiting from energy exports and safe-haven inflows, while Europe and Asia are more exposed to oil shocks.

The strengthening dollar pressures local Asian currencies, limits central banks’ monetary easing, and could dampen corporate earnings.

Traders are now pricing in about 50 basis points of tightening by the Bank of Korea over the next 12 months, up from 25 basis points expected last month, reflecting tighter financial conditions.

Despite Thursday’s bounce, technical selling has driven significant outflows. Foreign investors sold $6.3bn of Taiwanese stocks in the first three days of the week, pushing the market toward its second largest weekly net outflow on record.

Even with the recent pullback, the MSCI Asia Pacific Index still leads the S&P 500 by 7% points year-to-date, leaving room for further adjustments in crowded positions.

UBS Global Wealth Management upgraded South Korean equities, noting that the 20% correction and volatility show technical adjustments rather than fundamental deterioration.

“Elfreda Jonker, client portfolio manager at Alphinity Investment Management, said, ‘The current selloff in Asia is driven by a confluence of events, not just geopolitical risks. Markets like South Korea are particularly vulnerable given the recent strong rally and high valuations.’”

The Iran conflict has triggered a reassessment of global equity strategies, challenging the notion that Asia remains the premier destination for high-growth allocations.

Rising energy costs, shipping vulnerabilities, and currency pressures suggest that investors may increasingly rotate back toward US and other safer markets in the near term.

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