Asian stocks drop amid concerns over inflation

The MSCI Asia Pacific Index declined 1.1%, set for a drop in March of 13%, which would be the worst month since October 2008

Stock markets in Asia dropped on Tuesday, with the key benchmark erasing its gain for 2026, as soaring energy costs due to the Iran war raise concerns of inflation and slower growth.

The MSCI Asia Pacific Index declined 1.1%, set for a drop in March of 13%, which would be the worst month since October 2008. MSCI’s emerging market gauge also wiped out its gain for the year.

The milestone highlights the sharp turn of fortune for the Asian market, which had started 2026 on a roll as investors piled into the artificial intelligence infrastructure stocks.

But the war in the Middle East, now in its fifth week, shows little sign of easing.

The market has been treated to a further barrage of geopolitical headline risk, and this will only remain the case for the days and possibly weeks ahead, wrote Chris Weston, the head of research at Pepperstone Group in Melbourne. There remains increased scepticism around a near-term ceasefire.

The MSCI Asia gauge jumped 15% from the start of 2026 to its record high on Feb 27, far outpacing global equities. The gain has evaporated as an outlook for tighter monetary policy and crimped supply of key materials drives a rethink of the growth thesis.

Asian countries, including South Korea, Japan and India, are especially vulnerable to oil shocks given their heavy reliance on Middle East countries for imported energy. That has traders worrying about the negative impacts of higher costs on corporate profits and higher interest rates to tame inflation.

Kospi index led losses in Asia on March 31, dipping 3.7% while Nikkei index declined 1.7%.

Oil pushed higher on March 31 after Iran attacked another tanker in the Persian Gulf and US president issued threats against the country’s civilian infrastructure as hostilities in the Middle East continue to escalate.