Asian equities rally; KOSPI leads gains as US Treasury support counters Fed/Iran risks

Asian equities experienced a strong rally on Thursday, with South Korea's KOSPI leading the gains as SK Hynix shares jumped over 5% following a buyback announcement. Japan's Nikkei 225 and Hang Seng Index also gained 1%, while China's Shanghai Composite rose around 0.25%. The People's Bank of China kept the lending rates unchanged for the 15th straight month in August.

The US Treasury announced it would double buyback operations for long-dated government debt, easing pressure from the bond market and causing the 30-year yield to tumble. Bond markets in Australia and Japan followed the US trends, boosting the appetite for riskier assets. Oil prices remained mixed as traders waited for further developments in the Middle East crisis.

The US announced a possible economic operation against Iran and threatened financial penalties on nations aiding Tehran. The FOMC minutes released on Wednesday suggested at least one interest rate hike in 2026, keeping a lid on market optimism. Many officials believed further tightening could be necessary due to moderating price pressures in July, though inflation remains above the Fed's 2% target.

Asia contributes around 70% of global economic growth, with key stock market indices in Japan (Nikkei 225), South Korea (KOSPI), and China (Shanghai Composite, Shenzhen Composite). The technology sector dominates in Japan, South Korea, and China, while financial services lead in Hong Kong and Singapore. Manufacturing is strong in China and Japan, with a focus on automobile production and electronics.

The growing middle class in China and India is giving prominence to retail and e-commerce companies. Asia's main economies have specific sectors, and their performance is driven by aggregate results of component companies' earnings reports, economic fundamentals, central bank decisions, and government policies. Political stability, technological progress, and the rule of law also impact equity markets.

US equity indices influence Asian markets, and broader risk sentiment plays a role as equities are considered riskier investments compared to fixed-income securities. However, investing in Asian stocks comes with region-specific risks such as varying political systems, geopolitical events, natural disasters, and currency fluctuations.