Asian stocks fall despite bids to contain SVB contagion fears

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Asian markets fell on Tuesday as banks bore the brunt of the selloff on fears of contagion in the sector after two regional U.S. lenders collapsed.

The rapid closure of Silicon Valley Bank on Friday, followed by Signature Bank a few days later, forced US authorities to immediately pledge support to other lenders and depositors.

The decision by the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corp. reassured investors, but shares of several U.S. banks were hammered on fears of a customer rush.

It came despite Joe Biden assuring the country’s banking system was sound, while European leaders similarly tried to assuage investor concerns.

The collapse of SVB, which specializes in venture capital financing primarily in the technology sector, was largely the result of the Fed’s sharp interest rate hikes aimed at stifling inflation, which hit hard affected the securities.

Now, several commentators and major banks are saying the Fed may need to pause its tightening campaign to bring some stability to financial markets – with some even suggesting it may cut borrowing costs.

That sent the dollar tumbling on Monday, although it recouped some of those losses in Asian trading.

Yields on government bonds around the world have fallen in light of the crisis, and analysts are warning that the risk of recession has increased.

“Global bond markets suggest a global economic slowdown, which is not great for Asia,” said John Vail of Nikko Asset Management.

Stock markets were well into the red at the start of Asian trading on Tuesday, with Tokyo, Sydney and Seoul down nearly 2%, while Hong Kong, Shanghai, Singapore and Taipei suffered heavy selling.

Among the region’s banks, Mitsubishi UFJ Financial and Sumitomo Mitsui Financial Group each lost more than 7% in Japan, while Hong Kong-listed HSBC fell more than 3%.

National Australia Bank lost more than 2% and South Korean financial group KB fell 3%.

Bloomberg News reported that around $465 billion was wiped off the market value of global financial stocks in three days.

“The actions taken by the authorities have so far prevented a US bank from rushing deposits, but have not been sufficient to avoid an investor-led bank,” said Rodrigo Catril, National Australia Bank. .

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

Stephen Innes of SPI Asset Management added that the sale came as non-US banks had little exposure to distressed companies and global financial systems were teeming with liquidity.

“US financial stress could lead banks on all sides to cut lending to the real economy and tighten broader financial conditions, amplifying risk for broader markets,” he added.

“And a lower rate environment would likely affect global bank earnings.”

Investors were already nervous that the Fed would raise interest rates more than initially thought at its meeting next week, as the economy remains healthy and the job is tight.

They are now nervously awaiting the release of US consumer inflation figures this week, a higher-than-expected figure signifying a huge headache for the Fed in light of the SVB crisis.

“A policy error is by far the biggest risk in the market,” Mary Manning of Alphinity Investment Management told Bloomberg Television.

“It is difficult to control inflation but also to remedy the fact that there is some instability in the banking system.”


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