Asian equities were mixed on Wednesday as oil prices and US Treasury yields fell after crude flows through the Middle East improved. A senior Iranian official said Tehran could reopen the Strait of Hormuz within seven days if the US eases military pressure and lifts its blockade on Iranian ports. South Korea and Taiwan extended gains, helped by technology heavyweights after the Nasdaq Composite logged back-to-back record closes.
South Korea’s KOSPI added 0.03% to 7,020, while Taiwan’s Taiex rose 0.80% to 48,181. China and Hong Kong weakened: Shanghai slipped 0.25% to 3,942 and Hong Kong fell 0.85% to 24,875, with Shenzhen down 0.42% to 13,665. Japan’s markets are shut for a holiday from Monday to Wednesday and are due to reopen on Thursday, 24 September. Asia is described as contributing around 70% of global economic growth, with major benchmarks including Japan’s Nikkei, which tracks 225 companies, alongside indices such as the Hang Seng, Shanghai Composite and Shenzhen Composite.
Crude Oil, Nikkei, and the Strait of Hormuz
We recommend that derivative traders position themselves for a continued decline in crude oil prices by purchasing near-term put options on Brent or WTI futures. With the potential reopening of the Strait of Hormuz within seven days, the geopolitical risk premium that previously propped up energy markets is rapidly dissolving. Historically, when critical supply bottlenecks in the Middle East clear, crude benchmarks can quickly lose 5% to 8% of their value, making short-biased strategies highly attractive.
We see a highly profitable setup in Japanese Nikkei 225 futures and call options ahead of the market reopening on Thursday, September 24. Since Japanese markets have been closed since Monday, they have yet to price in the consecutive record-breaking closes on the Nasdaq. Buying call options on the Nikkei will allow us to capture the expected bullish gap-up as Tokyo plays catch-up with global tech momentum.
Pairs Trading, Long Taiwan and Korea, Hedging With Treasuries
To manage overall portfolio risk, we suggest implementing a pairs-trading strategy by going long on Taiwan (Taiex) or South Korean (KOSPI) futures while shorting the weaker Hang Seng Index. Taiwan’s Taiex recently climbed 0.80% to 48,181, fueled by an ongoing surge in global artificial intelligence demand that has pushed key semiconductor stocks up by over 25% this year. Conversely, Chinese and Hong Kong indices continue to lose momentum, making them excellent candidates for short positions to hedge our long tech exposure.
We also advise going long on US Treasury futures as yields continue to slide in response to stabilizing global conditions. Falling yields typically push bond prices higher, offering a reliable counterweight to our equity positions. Capitalizing on this shifting interest rate environment over the coming weeks will help us lock in steady gains while market volatility cools down.
