Hong Kong stocks closed lower on Monday alongside risk assets in Asia, while oil and gold surged after the US strikes on Iran, as surging geopolitical risks sparked a risk-off sentiment among investors.

The Hang Seng Index decreased 2.1%, while the Hang Seng Tech Index dropped 2.9%.

In terms of star stocks, Shandong Molong up 116%; Sinopec SSC up 34%; Chifeng gold up 12%; Alibaba, Xiaomi, SMIC, Meituan down 5%; Tencent down 1%.

The risk-averse mood adds to the uncertainty surrounding global risk assets, which have recently been rattled by fears of displacement by artificial intelligence after trading at elevated levels. Iran virtually shut the Strait of Hormuz, through which about a fifth of the world’s shipments of oil and gas flow, after the war broke out on Saturday. Strained energy supply will fuel a resurgence in inflation globally and could cloud the outlook for economic growth.

“We expect equities to move lower in the immediate aftermath of these events [as] most of the effect is likely to be felt through higher oil prices,” said Benjamin Jones, global head of research at US asset-management firm Invesco. “Many emerging markets that rely on foreign energy sources could be at risk. We also note that many Asian economies rely on imports from the Middle East, which we think may result in downward pressure on local assets.”

The US and Israel bombed targets across Iran, while the Islamic nation retaliated with strikes against Israel and US military bases in the Middle East. Iran’s supreme leader Ayatollah Ali Khamenei was killed in the assault. A prolonged confrontation in the Middle East might drive up oil prices above US$100 a barrel, which could increase the risk of a global slowdown and a pause in monetary loosening by the Federal Reserve, according to commodity analysts.

“Asia and emerging markets face a dual shock of higher oil prices, which tend to have an inflation and tax effect, and [lead to] a broader pullback in risk appetite,” said Charu Chanana, chief investment strategist at Saxo Markets.

Asian economies are mostly dependent on oil and gas imports, with every US$10 increase in oil prices cutting economic growth in the region by 20 to 30 basis points, according to Morgan Stanley. Thailand, South Korea, Taiwan and India were most vulnerable to the downside growth risk because of their dependence on energy imports, it said.

For now, the impact on China seemed to be muted, as the world’s second-largest economy has estimated oil reserves of as much as 1.5 billion barrels, and the disruption from Iran could be offset by supply from Russia, according to Michael Langham, an economist at Aberdeen Investments. Still, a protracted war would exacerbate the macro picture of the nation, he added.

Sectorwise, energy producers, shipping lines, defence contractors and insurers were likely to benefit from the military strife, while cyclical sectors sensitive to fuel prices, such as airlines and other industries, would be under pressure, according to Franklin Templeton.

While history shows that Middle East conflicts triggered sharp but short-lived market downturns, the tail risk to stocks should not be ignored, given that many markets traded near record highs and stretched valuations, according to Julius Baer. That left limited room for disappointment and increased the risk of near-term derating, if escalation persisted, it said.

“A sustained rise in oil prices would tighten financial conditions, pressure margins and reawaken stagflation concerns, even in a structurally less oil-intensive global economy,” said Mathieu Racheter, head of equity strategy research at Julius Baer.