Asian stock markets climb: AI dividends hedge geopolitical risks, investors bet that the peak of uncertainty has passed.

On Monday, Asian stock markets rose, as investors shifted their focus away from the tense situation in the Middle East over the weekend and back towards fundamentals and the prospects for further negotiations. The MSCI Asia Pacific Index rose by 0.8%, while the MSCI Emerging Markets Index erased all losses incurred during the Iran conflict in the past two months. U.S. stock index futures narrowed their early 1.1% decline. Crude oil and the U.S. dollar also retreated from their intraday highs. Analysts and strategists believe that these trends indicate that investors are now betting through position adjustments that the peak of uncertainty has passed, and the market is at a crucial turning point transitioning from "wartime pricing" to "normal trading." They said that more optimistic negotiation prospects, the resurgence of AI trading, and the increased focus on corporate fundamentals as the earnings season unfolds are all driving market sentiment. Under the current game framework, investors' optimistic expectations for peace negotiations have become the cornerstone of supporting sentiment. Despite ongoing geopolitical tensions, market sentiment has not reached a level of comprehensive risk aversion. As both sides are still willing to engage in dialogue, investors see an opportunity for a potential easing of tensions. Matthew Haupt, portfolio manager at Wilson Asset Management, said: "I believe the market pricing already reflects the expectation of a final agreement in the Middle East and a return to normalcy. So far, we have seen very mature responses from stock futures, because we all know the end result, so most are now willing to ignore these fluctuations." Asian stock markets rebounded on low volume, but institutions remain cautious, with AI semiconductors as the leading engine of the uptrend. After President Trump and Iranian officials expressed different opinions on the next stage of the war, uncertainty further escalated and doubts were raised about the prospects for peaceful negotiations ahead of the ceasefire deadline. Akio Shimizu, chief global strategist at East-H](Utokyo Research Institute, said: "The focus now is on whether the U.S. and Iran talks can really take place. The likelihood of Iran ultimately canceling the talks is small, so although investors may be hesitant, it is difficult for them to take a bearish position." While trading volume remains low under a wait-and-see sentiment, such as the South Korea Composite Stock Price Index (KOSPI) being about 33% lower than the average level last month, the continued decline in short positions and the decrease in short sell ratios in the Japanese stock market reveal the cautious attitude of institutional investors in taking aggressive bearish positions as major stock indices near historical highs. Some market observers point out that as major Asian stock indices, including the Nikkei 225 Index in Japan and the Taiwan Weighted Index, rebound to historical highs, shorting becomes more difficult. Short sell ratios in the Japanese stock market have decreased since the beginning of this month, with the 5-day moving average dropping from 41.8% on April 3 to about 38.8%. At the core of this round of "structural uptrend" is the strong fundamental of the AI industry from Beijing Dynamic Power. Hiroki Takeshi, strategist at Resona Holdings, said: "From the indices, the Nikkei index is particularly close to historical highs, and in terms of sector contributions, the rise is almost entirely driven by the semiconductor industry. This means that there is still room for growth in other sectors." On Monday, the South Korean stock market rose by more than 1%, erasing the decline caused by the Iran war, mainly due to the rise of chip manufacturers as AI trading once again became the focus of investors. Despite the ravages of war, Asian tech companies continue to show strong profit performance: TSMC raised its revenue forecast for 2026 due to strong demand for AI chips, Samsung Electronics' quarterly profit grew eightfold, and the earnings report from Korean memory chip maker SK Hynix to be released on Thursday is also one of the key factors driving the trend of tech stocks. Analysts generally believe that Asia, as the heart of the global semiconductor supply chain, has shown strong resilience in the face of geopolitical risks and technological dividends, with funds accelerating flow to the tech sector with long-term growth logic. Billy Leung, investment strategist at Global X Management, said: "We are approaching or already at the peak of uncertainty. Asia has always been the region most affected by peaceful trade. The structural foundation of the AI industry remains intact. The flow of funds into storage chips is accelerating." Asian defense stocks usher in a structural uptrend However, behind this optimism of "peaking uncertainty," the flow of funds has not spread blindly, but has shown extremely clear selectivity: investors no longer see geopolitical conflicts as short-term disturbances, but begin to deeply price in the industrial changes brought about by the prolonged conflict. This shift in logic directly propelled Asian defense stocks from "safe-haven tools" to a "structural bull market." According to several institutions including Bank of America Securities, this round of defense stock rally is not a short-term geopolitical speculation, but a strategic opportunity with long-term growth support. The Bloomberg Aerospace and Defense Index shows that of the top five performing defense companies globally this year, three are in Asia, namely South Korea's Hanwha Systems, LIG Defense & Space, and Japan's AstroScale Holdings. This means that as the Middle East situation escalates and boosts global arms demand, Asian defense companies are becoming core beneficiaries with cost advantages, supply chain flexibility, and faster delivery capabilities. The depth and breadth of this market outlook far exceed market expectations. Institutions such as BlackRock and Jupiter Asset Management have pointed out that even if conflicts ease in the short term, the strategic shift from "passive defense" to "active deterrence" by countries is irreversible. NATO's goal of increasing defense spending to 5% of GDP by 2035 has set a long-term tone for high global military expenditures. Analysts say that Asian defense manufacturers have transformed from simple weapon purchasers to key participants with research and innovation capabilities deeply integrated into the U.S. and European supply chains. The advanced technology and cost-effectiveness of South Korean companies, India's policy tilt towards local production, and the steady 13% increase in Singapore ST Engineering's stock during wartime together form a high-growth track sustained over many years. Although defense stocks experienced volatility due to profit-taking during periods of war, long-term capital allocation remains firm. As analyzed by Allspring Global Investments, the decline during the peak of conflict is more of a psychological reaction of market de-risking rather than a deterioration of fundamentals.