Asian stocks were battered on Tuesday as the shockwave from the collapse of Silicon Valley Bank (SVB) hit hard, sending banking equities tumbling across the region.
Assurances from President Joe Biden and other policymakers did little to calm the markets and prompted a rethink on the interest rate outlook.
Biden’s efforts to reassure markets and depositors came after emergency US measures to shore up banks by giving them access to additional funding failed to dispel investor worries about potential contagion to other lenders worldwide.
Banking stocks in Asia extended those declines, with Japanese firms hit particularly hard and anxiety about systemic risk leading the wider market lower.
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Tokyo banking shares tumbled their most since the onset of the Covid-19 pandemic, dragging the Nikkei share average down more than 2%, as investors tried to gauge the fallout from the collapse of the US lender.
Yields on Japanese government bonds plunged to multi-month lows – with 10-year yields sliding to 0.24% for the first time since November – as they tracked US peers amid a global flight to quality.
Yield curves have flattened, putting additional weight on banks by cutting the outlook for lending profit.
Contagion fears also spurred investors to rein in expectations for how soon the Bank of Japan could loosen or even scrap its peg on long-term JGB yields – bets that had driven the Tokyo Stock Exchange’s banking index up nearly 28% since late-December to the highest since 2015 last week.
The Nikkei sank 2.19% to end at 27,222.04, its worst day in nearly four months. The session low of 27,104.75 had not been seen since February 22.
The broader Topix, which is more influenced by swings in bank stocks than the tech-heavy Nikkei, fell 2.67% to 1,947.54, its biggest drop since late September. At one point it was down as much as 3.2% at 1,935.62, the lowest since January 20.
The steep declines came despite more assurances from Japanese officials, with Finance Minister Shunichi Suzuki telling reporters on Tuesday he did not expect SVB’s failure to have a big impact on Japan’s economy or financial system. He declined to comment on its potential impact on BOJ policy.
China and Hong Kong stocks fell to their lowest in more than two months, as fears about contagion from the collapse of SVB lingered.
In Hong Kong, the Hang Seng’s finance subindex tumbled 3.0%, with HSBC Holdings down 4.7% and AIA Group Ltd losing 4.4%.
Tech giants listed in Hong Kong fell 2.6%, with Alibaba Group Holding Ltd shedding 3.9% and Meituan down 2.8%.
Market participants also digested news that Chinese President Xi Jinping is planning to travel to Russia to meet Vladimir Putin as soon as next week.
China’s blue-chip CSI300 Index closed down 0.6%, after touching its lowest since early January. The Shanghai Composite Index was off 0.72%, or 23.38 points, at 3,245.31.
Hong Kong’s benchmark Hang Seng index slumped 2.27%, or 448.01 points, to 19,247.96, while the Shenzhen Composite Index on China’s second exchange edged down 0.98%, or 20.49 points, to 2,075.93.
Elsewhere across the region, Seoul was more than 2% down, while Sydney, Taipei, Manila, Jakarta and Bangkok all shed more than 1%. Mumbai, Singapore and Wellington also sank.
Major US banks lost around $90 billion in stock market value on Monday, bringing their loss over the past three trading sessions to nearly $190 billion. Regional US banks were hit the hardest.
Shares of First Republic Bank tumbled more than 60% as news of fresh financing failed to reassure investors and rating’s agency Moody’s reviewed it for a downgrade.
Europe’s STOXX banking index closed 5.7% lower. Germany’s Commerzbank fell 12.7% and Credit Suisse slid 9.6% to a record low.
Biden said his administration’s actions meant “Americans can have confidence that the banking system is safe,” while also promising stiffer regulation after the biggest US bank failure since the 2008 financial crisis.
Regulators also moved swiftly to close New York’s Signature Bank, which had come under pressure in recent days. “A serious investigation needs to be undertaken on why the regulators missed red flags and what needs to be overhauled,” said Mark Sobel, a former senior Treasury official and US chair of Official Monetary and Financial Institutions Forum, a think tank.
In the money markets, indicators of credit risk in the US and euro zone banking systems edged up.
Emboldened by bets the Fed may have to slow its rate hikes, the price of gold, a popular safe-haven raced above the key $1,900 level.
Tokyo – Nikkei 225 < DOWN 2.19% at 27,222.04 (close)
Hong Kong – Hang Seng Index < DOWN 2.27% at 19,247.96 (close)
Shanghai – Composite < DOWN 0.72% at 3,245.31 (close)
London – FTSE 100 < DOWN 0.35% at 7,522.51 (0935 GMT)
New York – Dow < DOWN 0.28% at 31,819.14 (Monday close)
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