The MSCI’s broadest index of Asia-Pacific shares outside Japan 1.8% higher

Asian stocks rose sharply on Friday, led by chip and AI firms as investors brushed off tit-for-tat attacks ​escalating between Iran and the U.S.

While the renewed back-and-forth ‌attacks have further eroded the fragile three-week-old Iran-U.S. ceasefire, markets have mostly taken in stride the developments in the Middle East, although oil prices and their inflationary impact are back on investors’ radar.

Japan’s bond market and currency lurched higher after Finance Minister Satsuki Katayama said on Friday the government wants to explore ways to encourage pension funds, including the Government Pension Investment Fund (GPIF), to increase their holdings of domestic financial assets.

Brent crude futures were set ​for a 5% week-on-week rise, the strongest weekly performance since early May. But at $76.73 per barrel, Brent has given up most of the gains it picked up ​when the war began at the end of February.

I’m looking at updates from the Middle East and things don’t look good, but investors ⁠seem incredibly resilient to those risks at the moment, with tech again driving markets higher, said Nick Twidale, chief market strategist at ATFX Global in Sydney.

Nikkei gained 1.8% while KOSPI, the epicentre of the AI rally, gained over 5%. Chip firms SK Hynix and Samsung Electronics were up around 3% and 6%, respectively, while Taiwan markets were closed due ​to a typhoon.

That left the MSCI’s broadest index of Asia-Pacific shares outside Japan 1.8% higher.

We will start on the front foot again in Asia, but I’m still very cautious that we are not pricing in enough event risk that the Strait of Hormuz may be closed again in the coming days, Twidale said.

Investors have kept their focus on the AI theme that has ​propelled world stocks to record highs but spurred worries about the sustainability of the rally and high valuations.