Asian stocks surge as US-Iran peace deal boosts risk sentiment

Asia markets rally on US-Iran memorandum

South Korea's KOSPI led regional gains, jumping 5.6% and moving back toward a record high. In China, the Shanghai Shenzhen CSI 300 rose 1.3%, while the Shanghai Composite added 0.9%. Hong Kong's Hang Seng index was up 0.4%. Singapore's Straits Times index advanced 1.2%, and futures for India's Nifty 50 increased 1.7%.

The positive tone followed strong gains on Wall Street on Friday, where rocket company SpaceX recorded substantial advances in its market debut. S&P 500 futures climbed 1.1% during Asian trading hours on Monday, extending the upbeat backdrop for regional risk assets.

Market sentiment was supported by news that the U.S. and Iran had agreed to a memorandum of understanding (MOU) intended to end their conflict and reopen the Strait of Hormuz, with a formal deal expected to be signed by Friday. The parties are then due to hold talks on Iran's nuclear activities, with reports indicating that the U.S. could resume attacks on Iran if no nuclear agreement is reached.

The MOU raised expectations for an immediate easing of geopolitical tensions in the Middle East and led to a sharp decline in oil prices on prospects of reduced supply disruptions. Lower oil prices are viewed as supportive for several major Asian economies, including India, Japan, and South Korea, which rely heavily on oil imports through the Strait of Hormuz.

Japan hits records ahead of BOJ; Australia steady before RBA

Japanese equities rallied alongside regional peers, with the Nikkei 225 gaining 5.4% and the TOPIX rising 3.6%. Both indices reached record highs, supported by broad-based advances across tech and non-tech sectors.

Attention is now turning to the Bank of Japan, which concludes a two-day policy meeting on Tuesday. The BOJ is widely expected to raise interest rates by 25 basis points, after repeatedly signaling that it would consider a June hike in response to rising inflationary pressures linked to the Iran conflict. Market focus will be on the central bank's outlook for the coming months, with ANZ analysts anticipating a largely hawkish shift in tone.

In Australia, the ASX 200 climbed 1.3% on Monday ahead of the Reserve Bank of Australia’s policy decision on Tuesday. The RBA is expected to leave interest rates unchanged, according to market expectations cited in the report.

FAQ

What triggered the rally in Asian stock markets on Monday?
Asian markets rose following news of a preliminary peace deal between the U.S. and Iran, strong gains on Wall Street, and a sharp decline in oil prices.

Which Asian index showed the strongest performance?
South Korea's KOSPI was the strongest performer, surging 5.6% and moving back toward a record high.

Why are lower oil prices significant for Asia?
Lower oil prices benefit major Asian importers such as India, Japan, and South Korea, which rely heavily on oil shipments that pass through the Strait of Hormuz.

What is expected from the Bank of Japan’s upcoming meeting?
The BOJ is widely expected to raise interest rates by 25 basis points and provide guidance on its outlook, with analysts at ANZ anticipating a hawkish shift.