According to the Zhitong Finance APP, on Monday, Asian stock markets rose as investors shifted their focus away from the renewed tensions in the Middle East over the weekend and redirected their attention to fundamentals and the prospects for further negotiations. The MSCI Asia-Pacific Index rose by as much as 0.8%, while the MSCI Emerging Markets Index erased all losses incurred during nearly two months of the Iran war. U.S. stock index futures narrowed their early losses of up to 1.1%. Crude oil and the dollar also retreated from intraday highs.
Analysts and strategists believe these trends indicate that investors are currently positioning themselves with the bet that the peak of uncertainty has passed, and the market is at a critical turning point transitioning from &#34;war-time pricing&#34; to &#34;normal trading.&#34; They stated that a more optimistic outlook for negotiations, a recovery in AI trading, and a renewed focus on corporate fundamentals as the earnings season unfolds are all driving market sentiment.
In the current game framework, investors' optimistic expectations for peace negotiations have become the cornerstone of supportive sentiment. Despite ongoing geopolitical tensions, market sentiment has not reached a level of comprehensive risk aversion. Given that both sides are still willing to engage in dialogue, investors see an opportunity for the situation to ease.
Matthew Haupt, a portfolio manager at Wilson Asset Management, stated, &#34;I believe the market pricing has reflected expectations that the Middle East will ultimately reach an agreement and return to normal life. So far, we have seen a very mature response from stock index futures, as we all know the eventual outcome, so most are now willing to overlook these fluctuations.&#34;
Asian stock markets rebounded on low volume, but institutions remain cautiously bearish, with AI semiconductors being the main engine of the rise.
It is understood that uncertainty further intensified after differing opinions were expressed by Trump and Iranian officials regarding the next phase of the war, leading to skepticism about the prospects for peace negotiations before the ceasefire deadline. Akira Hirakawa, Chief Global Strategist at Tokyo Marine Research Institute, stated, &#34;The current focus is on whether U.S.-Iran talks can actually take place. The likelihood of Iran ultimately canceling the talks is low, so although investors may be hesitant, it is difficult for them to take a bearish stance.&#34;
Despite low trading volumes amid a wait-and-see sentiment, such as the Korea Composite Stock Price Index (KOSPI) being about 33% lower than the average level last month, the continued decline in short positions in the Japanese stock market and the decrease in the short-selling ratio reveal a cautious attitude among institutional investors towards taking aggressive bearish positions as major stock indices approach historical highs.
Some market observers pointed out that as major Asian stock indices, including Japan's Nikkei 225 and Taiwan's Weighted Index, rebound to historical highs, short-selling has become more challenging. The short-selling ratio in the Japanese stock market has decreased since the beginning of this month, with the 5-day moving average dropping from 41.8% on April 3 to about 38.8% as of last Friday.
The core driving force behind this round of &#34;structural market&#34; comes from the strong fundamentals of the AI industry. Hiroki Takei, a strategist at Resona Holdings, stated, &#34;From an index perspective, the Nikkei Index is particularly close to historical highs, and in terms of contributions from various sectors, the rise has been almost entirely driven by the semiconductor industry. This means that other sectors still have room for growth.&#34;
On Monday, the South Korean stock market rose more than 1%, erasing the decline triggered by the Iran war, mainly due to the rise of chip manufacturers as artificial intelligence trading regained investors' attention.
Despite the ravages of war, the earnings performance of Asian tech companies remains strong: TSMC raised its 2026 revenue forecast due to strong AI chip demand, Samsung Electronics' quarterly profit increased eightfold, and the earnings report from South Korean memory chip manufacturer SK Hynix, to be released on Thursday, is also one of the key factors driving tech stocks. Analysts generally believe that Asia, as the heart of the global semiconductor supply chain, has shown remarkable resilience in the face of geopolitical risks and technological dividends, with funds accelerating towards tech sectors that have long-term growth logic.
Global X Management investment strategist Liang Bili stated, &#34;We are approaching or have already reached the peak of uncertainty. Asia has always been the region most affected by peaceful trading. The structural foundation of the AI industry remains intact. The flow of funds into memory chips is accelerating.&#34;
Asian defense stocks welcome structural market conditions
However, behind this optimistic sentiment of &#34;uncertainty peaking,&#34; the flow of funds has not spread blindly but has shown extremely distinct selectivity: investors are no longer viewing geopolitical conflicts merely as short-term disturbances but are beginning to deeply price in the industrial changes brought about by the long-term nature of conflicts.
This shift in logic has directly propelled Asian defense stocks from being &#34;safe-haven tools&#34; to a &#34;structural bull market.&#34; Several institutions, including Bank of America Securities, believe that this round of defense stock market is not a short-term geopolitical theme speculation but a strategic opportunity supported by long-term growth.
The Bloomberg Aerospace and Defense Index shows that among the five best-performing defense companies globally this year, three are from Asia: South Korea's Hanwha Systems, LIG Defense Aerospace, and Japan's AstroScale Holdings. This means that as the situation in the Middle East boosts global military demand amid &#34;repeated tug-of-war,&#34; Asian defense companies are becoming the core beneficiaries of global order flows due to their cost advantages, supply chain resilience, and faster delivery capabilities.
The depth and breadth of this prosperous pattern far exceed market expectations. Institutions such as BlackRock and Jupiter Asset Management point out that even if conflicts ease in the short term, the shift in strategy from &#34;passive defense&#34; to &#34;active deterrence&#34; is irreversible. NATO's goal of raising defense spending to 5% of GDP by 2035 has laid a long-term foundation for high global military expenditure.
Analysts indicate that Asian defense manufacturers have transformed from mere weapon purchasers to key players with R&amp;D innovation capabilities, deeply integrated into the US and European supply chains. The advanced technology and cost-effectiveness of South Korean companies, the Indian government's policy tilt towards domestic production, and Singapore's ST Engineering's robust 13% increase during the war collectively build a high-growth track that can last for years.
Although defense stocks experienced volatility due to profit-taking during the war, long-term capital allocation remains firm. As analyzed by Allspring Global Investments, the decline during the peak of the conflict is more a psychological reaction of market de-risking rather than a deterioration of fundamentals

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On Monday, Asian stock markets rose as investors focused on fundamentals and negotiation prospects, with the MSCI Asia-Pacific Index increasing by 0.8%. Analysts believe that the market is transitioning from "wartime pricing" to "normal trading," driven by optimistic negotiation prospects and a recovery in artificial intelligence trading that boosts market sentiment. Despite ongoing geopolitical tensions, investors' expectations for peace negotiations support sentiment. Wilson Asset Management stated that the market has reflected expectations of an agreement in the Middle East, and stock index futures are responding maturely

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