Hong Kong: Asian market Banks sank on Tuesday, with banks bearing the brunt of a selloff on fears of contagion in the region following the collapse of two regional US lenders.
Signature Bank on Friday came days after the rapid closure of the Silicon Valley bank forced US authorities to quickly extend support for other lenders and depositors.
Moves from the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corp. brought some reassurance to investors, but shares of many US banks were hit by fears of a run by customers.
It came despite assurances from Joe Biden that the country’s banking system was sound, while European leaders similarly sought to calm investor concerns.
The collapse of SVB, which largely specialized in venture-capital financing in the tech sector, was largely the result of the Fed’s rapid interest rate hikes aimed at taming inflation, which hit securities hard.
Now many commentators and leading banks say the Fed may need to pause its tightening campaign to provide some stability to financial markets – with some even suggesting it could cut borrowing costs.
It dropped the dollar on Monday, though it recovered some losses in Asian trade.
Yields on government bonds around the world have fallen in light of the crisis, and analysts warn that the risk of recession has increased.
“Global bond markets are showing signs of a global economic slowdown, which doesn’t bode well for Asia,” said John Weil of Nikko Asset Management.
Equity markets were in the red in early Asian trade on Tuesday, with Tokyo, Sydney and Seoul down around two per cent each, while Hong Kong, Shanghai, Singapore and Taipei faced heavy selling.
Among banks in the region, Mitsubishi UFJ Financial and Sumitomo Mitsui Financial Group each shed more than seven per cent in Japan, while Hong Kong-listed HSBC sank more than three per cent.
National Australia Bank fell more than two percent and South Korea’s KB Financial Group fell three percent.
Bloomberg News reported that nearly $465 billion was wiped from the market value of global financial stocks in three days.
“The measures taken by the authorities have so far prevented the US bank from running on deposits, but not enough to stop the bank being run over by investors,” said Rodrigo Catril of National Australia Bank.
“The risk of a financial crisis has risen, and investors have rushed to hedge their exposure to this sector.”
Stephen Innes of SPI Asset Management said the selling came despite non-US banks being less risk averse with troubled firms and global financial systems being flush with cash.
“US financial stress could prompt banks of all stripes to curtail lending to the real economy and strengthen macroeconomic conditions, increasing risks to broader markets,” he added.
“And the low-rates environment will impact the profitability of banks around the world.”
Investors were already worried about the prospect that the Fed would hike interest rates higher than before when it meets next week, as the economy grapples with poor health and a tight jobs market.
In light of the SVB crisis, they are now eagerly awaiting the release of US consumer inflation data this week, the forecast-beating figure posing a major headache for the Fed.
“Policy missteps are the biggest risk in the market,” Mary Manning of Alfinity Investment Management told Bloomberg Television.
“It is difficult to control inflation but also to address the fact that there is some volatility in the banking system.”
Signature Bank on Friday came days after the rapid closure of the Silicon Valley bank forced US authorities to quickly extend support for other lenders and depositors.
Moves from the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corp. brought some reassurance to investors, but shares of many US banks were hit by fears of a run by customers.
It came despite assurances from Joe Biden that the country’s banking system was sound, while European leaders similarly sought to calm investor concerns.
The collapse of SVB, which largely specialized in venture-capital financing in the tech sector, was largely the result of the Fed’s rapid interest rate hikes aimed at taming inflation, which hit securities hard.
Now many commentators and leading banks say the Fed may need to pause its tightening campaign to provide some stability to financial markets – with some even suggesting it could cut borrowing costs.
It dropped the dollar on Monday, though it recovered some losses in Asian trade.
Yields on government bonds around the world have fallen in light of the crisis, and analysts warn that the risk of recession has increased.
“Global bond markets are showing signs of a global economic slowdown, which doesn’t bode well for Asia,” said John Weil of Nikko Asset Management.
Equity markets were in the red in early Asian trade on Tuesday, with Tokyo, Sydney and Seoul down around two per cent each, while Hong Kong, Shanghai, Singapore and Taipei faced heavy selling.
Among banks in the region, Mitsubishi UFJ Financial and Sumitomo Mitsui Financial Group each shed more than seven per cent in Japan, while Hong Kong-listed HSBC sank more than three per cent.
National Australia Bank fell more than two percent and South Korea’s KB Financial Group fell three percent.
Bloomberg News reported that nearly $465 billion was wiped from the market value of global financial stocks in three days.
“The measures taken by the authorities have so far prevented the US bank from running on deposits, but not enough to stop the bank being run over by investors,” said Rodrigo Catril of National Australia Bank.
“The risk of a financial crisis has risen, and investors have rushed to hedge their exposure to this sector.”
Stephen Innes of SPI Asset Management said the selling came despite non-US banks being less risk averse with troubled firms and global financial systems being flush with cash.
“US financial stress could prompt banks of all stripes to curtail lending to the real economy and strengthen macroeconomic conditions, increasing risks to broader markets,” he added.
“And the low-rates environment will impact the profitability of banks around the world.”
Investors were already worried about the prospect that the Fed would hike interest rates higher than before when it meets next week, as the economy grapples with poor health and a tight jobs market.
In light of the SVB crisis, they are now eagerly awaiting the release of US consumer inflation data this week, the forecast-beating figure posing a major headache for the Fed.
“Policy missteps are the biggest risk in the market,” Mary Manning of Alfinity Investment Management told Bloomberg Television.
“It is difficult to control inflation but also to address the fact that there is some volatility in the banking system.”
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