Asian equities rallied sharply following a strong performance on Wall Street, as investor risk appetite improved on rising hopes for a resolution to the Middle East conflict. South Korea's Kospi soared over 8% to near 5,460, leading regional gains, while Japan's Nikkei 225 climbed 4.48% to around 53,350, and Hong Kong's Hang Seng Index advanced over 2% to 25,300. China's SSE Composite Index also rose 1.41% to 3,950 [1]. The rally was underpinned by comments from US President Donald Trump, who stated the US would be 'leaving very soon' from the Iran war, with a withdrawal possible within two to three weeks, and emphasized that a formal agreement with Tehran was not required to end hostilities. Iranian President Masoud Pezeshkian expressed willingness to de-escalate tensions if specific guarantees were met [1][3].
The improved geopolitical outlook fueled demand for risk-sensitive assets globally. The S&P 500 futures traded 0.33% higher after a nearly 3% surge on Tuesday, reflecting a significant improvement in investor sentiment [2]. The US Dollar Index (DXY) fell 0.8% on Tuesday to around 99.85, as safe-haven demand diminished amid de-escalating tensions [2][3]. The Indian Rupee strengthened, with USD/INR dropping to near 93.65 from an all-time high of 95.22, as risk appetite returned and foreign institutional investors had previously offloaded Rs. 1,22,539.89 crore from Indian equities in March due to war-related concerns [3].
In Japan, the Tankan Large Manufacturing Index rose for a fourth consecutive quarter to 17 in Q1 2026 from a revised 16, beating expectations and marking the highest level since Q4 2021. Large non-manufacturers' sentiment held at a multi-decade high of 36. Analysts, however, cautioned that the Tankan survey may not fully reflect the impact of the Iran war, as the survey period ended in March. They warned that the ongoing closure of the Strait of Hormuz could exacerbate energy costs and supply chain disruptions, potentially dampening corporate sentiment in the coming months [1][4].
South Korea's Kospi rally was further supported by strong fundamentals, with exports jumping 48.3% year-over-year to a record $86.1 billion in March, driven by robust semiconductor shipments [1]. In Hong Kong, all major sectors contributed to the rally, led by property, financials, and consumer stocks, though gains were partly limited by weaker-than-expected Chinese manufacturing PMI data, which eased to 50.8 in March from 52.1 in February [1].
Currency and commodity markets reflected the improved risk environment. The AUD/USD pair traded 0.12% higher near 0.6910, though technical analysis suggested near-term resistance and a mildly bearish bias below the 20-day EMA. Investors are now focused on upcoming US economic data, including the ADP Employment Change, ISM Manufacturing PMI, and Retail Sales, for further cues on the interest rate outlook [2][3].
CONCLUSION
Asian markets posted strong gains as hopes for Middle East peace boosted risk appetite and diminished demand for safe-haven assets. While business sentiment in Japan and South Korea was buoyed by strong data and export growth, analysts cautioned that ongoing geopolitical risks and energy market disruptions could temper optimism in the months ahead. Investors are now watching key US economic releases for further direction.