Asian stocks fell broadly on Tuesday, dragged down by banking shares, as fears over the fallout of Silicon Valley Bank’s collapse gripped the market despite US government efforts to stabilize the financial system.
Japan’s Nikkei 225 (N225) tumbled 2.19% to post its third straight day of declines. Hong Kong’s Hang Seng (HSI) briefly dropped 2.5%, before trimming losses in the afternoon. Korea’s Kospi lost almost 3%. China’s Shanghai Composite shed 0.65%.
Banks were the hardest hit sector across the region.
HSBC (HBCYF) Holdings plunged more than 5% in Hong Kong after the banking giant pledged to inject 2 billion pounds ($2.4 billion) of liquidity into SVB’s UK unit, which it had bought for 1 pound. Standard Chartered Bank sank nearly 7%.
The sell-off happened despite extraordinary measures by US regulators over the weekend to avert a potential banking crisis following the collapse of SVB. The California-based lender fell with astounding speed on Friday, marking America’s biggest bank shutdown since 2008.
Investors are now on edge over whether the demise of SVB could spark a broader banking sector meltdown. On Monday, US stocks were mixed, with banking shares taking a hit.
“Investors fear other financial institutions are sitting on significant unrealized losses on their balance sheets because of markedly higher interest rates,” said DBRS Morningstar analysts on Monday.
The fear was “irrespective of fundamentals,” they said.
US Treasury yields were sharply lower on Monday as investors flocked to safe-haven assets. The yield on the 2-year Treasury was briefly down more than 50 basis points, the biggest daily drop in decades.
“At the moment, markets are speculating on a Fed’s U-turn, but are equally pricing in a greater degree of contagion in the banking sector turmoil, which is ultimately weighing on risk sentiment,” ING analysts wrote in a research note on Tuesday.
Should the Federal Reserve accommodate market hopes and end its interest rate tightening cycle, there would be ample room for market sentiment to rebound, they said.
Other Asia Pacific banking shares also fell.
In Hong Kong, shares in Bank of China (Hong Kong) and Hang Seng Bank fell 3.7% and 1.3% respectively. Pan-Asian insurer AIA Group traded down 4.7%.
In Tokyo, Mitsubishi UFJ Financial Group, Japan’s biggest bank, lost 8.4%. Sumitomo Mitsui Financial Group and Mizuho Financial Group both dropped more than 7%.
In Seoul, KB Financial Group and Shinhan Financial Group fell 3.6% and 2.5% respectively.
In Shanghai, China Merchants Bank dropped 1.2% and China Minsheng Banking Corp retreated by 0.3%.
In Sydney, Macquarie Group pulled back by 3.1% and ANZ Group was 1.5% lower.