Asian Markets Still Collapsing In The Aftermath of SVB Episode

Asian markets fell on Tuesday (Mar 14), with banks bearing the brunt of the selling due to fears of sector contagion following the failure of two regional US lenders.

The sudden closure of Silicon Valley Bank on Friday, followed by Signature Bank a few days later, compelled US authorities to pledge immediate support for other lenders and depositors.

The Federal Reserve, Treasury Department, and Federal Deposit Insurance Corp. action provided some reassurance to investors, but shares in several US banks were hammered on fears of a customer run.

This was despite Joe Biden assuring investors that the country's banking system was sound, and European leaders doing the same.

The demise of SVB, which specialised in venture capital financing primarily in the technology sector, was largely due to the Fed's sharp interest rate hikes aimed at containing inflation, which harmed securities.

Several commentators and leading banks are now suggesting that the Fed pause its tightening campaign in order to provide some stability to financial markets, with some even suggesting that it cut borrowing costs.

The dollar fell as a result on Monday, though it recovered some of its losses in Asian trade.

Government bond yields have fallen around the world as a result of the crisis, and analysts warn that the risk of a recession has increased.

"Global bond markets are indicating a global economic slowdown, which is not good for Asia," said Nikko's John Vail.

In early Asian trade Tuesday, equity markets were down nearly 2% in Tokyo, Sydney, and Seoul, while Hong Kong, Shanghai, Singapore, and Taipei saw heavy selling.

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

National Australia Bank fell more than 2%, while South Korea's KB Financial Group fell 3%.

It was also reported that the market value of global financial stocks had been reduced by $465 billion in three days.

"Measures by authorities have so far prevented a US bank run on deposits but have not been enough to avert a bank run by investors," said National Australia Bank's Rodrigo Catril.

"The risk of a financial crisis remains elevated, and investors have rushed to reduce their exposure to the sector."

SPI Asset Management's Stephen Innes added that the selling occurred despite non-US banks having little exposure to the troubled firms and global financial systems being flush with cash.

"US financial stress could cause banks of all stripes to curtail lending to the real economy and tighten broader financial conditions, amplifying risk to broader markets," he added.

"And a lower-rate environment would almost certainly reduce profits at global banks."

Investors are already concerned that the Fed will raise interest rates more than expected when it meets next week, despite the fact that the economy remains in poor health and the labour market remains tight.

They are now waiting with bated breath for the release of US consumer inflation figures this week, with a forecast-beating figure causing the Fed major headaches in light of the SVB crisis.

"A policy mistake is hands down the biggest risk in the market," Alphinity Investment Management's Mary Manning told Bloomberg Television.

"It is difficult to control inflation while also addressing the fact that there is some instability in the banking system."