Asian markets tumble as SVB contagion fears hit banking sector

People walk in front of an electronic quote board displaying share prices on the Tokyo Stock Exchange in Tokyo, March 14, 2023 — Tokyo shares opened lower on March 14, 2023 after a mixed session on Wall Street and lower European markets, despite assurances. from US President Joe Biden that America’s banking system is sound. (Photo by Kazuhiro NOGI/AFP)

Hong Kong, China | AFP | Tuesday, March 14, 2023

Asian markets fell on Tuesday, with banks bearing the brunt of selling on fears of contagion in the sector following the collapse of two regional US lenders.

The rapid closure of Silicon Valley Bank on Friday, and Signature Bank a few days later, forced the US authorities to immediately bail out other lenders and savers.

Actions by the Federal Reserve, the Treasury Department, and the Federal Deposit Insurance Corporation. gave some confidence to investors, but shares of several US banks fell due to fears of customer flight.

This came despite U.S. President Joe Biden reassuring that the country’s banking system was sound, while European leaders similarly sought to reassure investors.

The collapse of SVB, which specializes in venture capital funding primarily in the tech sector, was largely the result of a sharp hike in interest rates by the Fed to curb inflation, which hit equities hard.

Now, several commentators and leading banks are saying the Fed may have to pause its tightening campaign to bring some stability to financial markets, with some even suggesting it could lower borrowing costs.

“The demise of the SVB will force central banks to slow down interest rate hikes,” said Arun Sai of Pictet Asset Management.

“Central banks will now have to consider the impact of any further interest rate hike on the stability of the financial system.”

This sent the dollar down on Monday, though it offset some of the loss in Asian trade.

Government bond yields around the world fell in light of the crisis, and analysts warn that the risk of a recession has risen.

“Global bond markets suggest a global slowdown in economic growth, which is not good for Asia,” said John Weil of Nikko Asset Management.

Stock markets were in the red in Asian deals on Tuesday, with Tokyo, Hong Kong and Seoul falling more than two percent, while Sydney, Taipei, Manila, Jakarta and Bangkok lost more than one percent.

Shanghai, Mumbai, Singapore and Wellington also sank.

– Inflation data in focus –

Among banks in the region, shares of Mitsubishi UFJ Financial fell more than eight percent and Sumitomo Mitsui Financial Group fell more than seven percent in Japan, while shares of Hong Kong-listed HSBC fell more than five percent.

Shares in National Australia Bank fell more than one percent, while shares in South Korea’s KB Financial Group fell more than three percent.

Bloomberg News reported that about $465 billion was depreciated from the market value of global financial stocks in three days.

“The authorities’ measures so far have prevented US banks from running into deposits, but they have not been enough to prevent investors from running the bank,” said Rodrigo Catril of National Australia Bank.

“The risk of a financial crisis remains elevated and investors have rushed to reduce their exposure to this sector.”

Stephen Innes of SPI Asset Management added that the sale came despite non-U.S. banks having little ties to firms in trouble and global financial systems brimming with cash.

“Financial stress in the US could see banks of all stripes cut lending to the real economy and tighten broader financial conditions, increasing risk to broader markets,” he added.

“And lower rates are likely to hurt global bank profits.”

Investors were already on the verge of the Fed raising interest rates more than originally thought when it meets next week as the economy remains in bad shape and the labor market is tight.

Now they are nervous ahead of the release of US consumer inflation data this week, with a higher-than-expected figure meaning a huge headache for the Fed in light of the SVB crisis.

“Policy error is the biggest risk in the market,” Alphinity Investment Management’s Mary Manning told Bloomberg Television.

“Controlling inflation and also accounting for some instability in the banking system is difficult.”

Oil has fallen more than one percent since falling on Monday, as traders worry about the prospects for demand triggered by a possible recession.

– Key figures around 07:00 GMT –

Tokyo – Nikkei 225: DOWN 2.2% to 27,222.04 (close)

Hong Kong – Hang Seng Index: DOWN 2.5 percent to 19,213.25.

Shanghai – Composite: 0.7% DOWN to 3245.31 (close)

Dollar/yen: up to 133.66 yen from 133.22 yen on Monday.

EUR/USD: DOWN to $1.0700 from $1.0731.

Pound/Dollar: DOWN to $1.2162 from $1.2181.

Euro/lb: DOWN by 87.94p from 88.02p.

West Texas Intermediate: REDUCED 1.1% to $73.95 a barrel

Brent North Sea Oil: REDUCED 1.1% to $79.88 a barrel

New York-Dow: DOWN 0.3% to 31,819.14 (close)

London – FTSE 100: 2.6% down to 7,548.63 (close)