The financial world is currently witnessing a striking paradox: higher prices on “Wall Street”, meaning equity markets, even as growth forecasts are revised downwards on “Main Street”, meaning the real economy.
While the war in Iran continues, heavily disrupting global energy markets and shipping routes and consequently damaging the world economy, stock indices in the United States, Japan and South Korea have all reached new all-time highs.
At the start of the week, the S&P 500 hit a new record high of 7,273, while the tech-heavy NASDAQ-100 also climbed to an all-time high, just above 28,000 on Tuesday.
In Asia, South Korea’s Kospi soared nearly 7% to a fresh record on Wednesday, while TAIEX in Taiwan also reached a peak of 41,575. The Nikkei 225 in Japan hit a record high of 60,909 at the end of April.
These indices are tied to some of the economies arguably most exposed to disruption in the Strait of Hormuz. Around 80% of the oil and oil products that normally transit the waterway are destined for Asia. With an estimated 10–12 million barrels a day now disrupted, import-dependent economies such as South Korea and Japan face heightened energy risks.
In fact, when the Iran war first broke out, the KOSPI in South Korea fell by nearly 20% throughout the first few weeks, until the end of March, while the Nikkei 225 in Japan dropped more than 14% over the same period. Both markets came under particular pressure in the early weeks of the conflict, amid a broader global stock market sell-off, but have since fully recovered.
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In Europe, the EURO STOXX 50 and the broader pan-European STOXX Europe 600 have not reached new highs since the Iran war began, after both touched record levels in the same week as the first US-Israeli strikes. However, both indices are trading less than 10% below those peaks, underlining their resilience so far.
This sharp divergence between record equity valuations and the reality of a slowing global economy, with oil prices at a 4-year high, underscores a significant shift in market dynamics. But what is driving it?
Silicon dominance and the AI wave
The main driver behind the record-breaking performance of Asian and US markets is the sustained momentum of the AI revolution.
In South Korea and Taiwan, for instance, stock indices are dominated by semiconductor and memory chip makers that have become the backbone of the modern digital economy.
Speaking to Euronews, Alan McIntosh, Chief Investment Officer at Quilter Cheviot Europe, said this concentration of specific high-value companies has a significant impact on regional index performance.
