Asian stocks experienced gains on Monday as investors chose to overlook heightened tensions in the Middle East that arose over the weekend, instead redirecting their attention to fundamental economic indicators and the potential for further negotiations.
The MSCI Asia Pacific Index increased by as much as 0.8%, and the MSCI Emerging Markets Index has recovered its losses incurred during the nearly two-month conflict in Iran. U.S. futures also reduced earlier declines of up to 1.1%, while oil prices and the U.S. dollar retracted from their session highs.
These market movements indicate that investors may be starting to believe that the peak of uncertainty has passed. Analysts attribute the positive sentiment to a more promising outlook for diplomatic discussions, a resurgence in the artificial intelligence sector, and a renewed emphasis on corporate fundamentals as the earnings season progresses.
Peak Uncertainty
Despite ongoing geopolitical tensions, sentiment in the market is not entirely risk-averse. Investors are buoyed by the possibility of negotiations between the conflicting parties.
“We think markets are priced for an eventual deal to move forward in the Middle East,” stated Matthew Haupt, portfolio manager at Wilson Asset Management. “Investor response in equity futures has been very measured, as there’s a general consensus around the expected outcomes.”
Lack of Conviction
Rapidly changing news events are causing caution among investors, making them hesitant to take strong positions and avoid being caught on the wrong side of volatility. Trading activity remained subdued across many Asian markets on Monday, with the trading volume on the Korean Kospi stock index about 33% lower than its monthly average.
The uncertainty was compounded by diverging statements from U.S. President Donald Trump and Iranian officials regarding the future trajectory of the conflict, which raised concerns about the feasibility of peace talks ahead of a ceasefire deadline.
“The immediate focus centers on whether negotiations between the U.S. and Iran will occur,” noted Shoji Hirakawa, chief global strategist at Tokai Tokyo Intelligence Lab. “While investors may be cautious, it is difficult for them to take a bearish stance given the circumstances.”
Short Caution
Market analysts pointed out the challenges of adopting a bearish outlook, particularly as major Asian indices, such as Japan’s Nikkei 225 and Taiwan’s Taiex, are rebounding toward record levels. The ratio of short-selling to total daily trades in Japan has decreased since the beginning of April, with the five-day moving average dropping from 41.8% on April 3 to about 38.8% on Friday.
“On an index level, the Nikkei is near its all-time highs, and this increase is primarily driven by semiconductors,” stated Hiroki Takei, a strategist at Resona Holdings. “This suggests potential for further growth across other sectors.”
Earnings, AI
South Korean stocks saw a rise of over 1% on Monday, reversing losses that were linked to the ongoing conflict in Iran, bolstered by a rally in chipmakers as interest in the AI sector resurfaces.
So far, the tech sector in Asia has demonstrated resilience amid the war, with Taiwan Semiconductor Manufacturing Co. raising its revenue forecast for 2026 due to solid AI chip demand. Additionally, Samsung Electronics Co. reported an eightfold increase in quarterly profits. Quarterly earnings from Korean memory chipmaker SK Hynix Inc. set to be released on Thursday are anticipated to be crucial for the tech market’s outlook.
“We are reaching or are already at peak uncertainty,” remarked Billy Leung, investment strategist at Global X Management. “Asia has been a high-beta expression of the peace trade, while the AI sector remains structurally strong. Memory flows are on the rise.”
More information is available on bloomberg.com.
Published on April 20, 2026
