Hong Kong (CNN) Asian stocks fell broadly on Tuesday, dragged down by banking stocks as fears of the fallout from the collapse of Silicon Valley Bank gripped the market despite the US government’s efforts to stabilize the financial system.
Japanese Nikkei 225 (N225) fell 2.19% to post its third straight day of decline. Hong Kong’s Hang Seng (HSI) briefly fell 2.5% before paring losses in the afternoon. Korea’s Kospi (KOSPI) lost almost 3 per cent. China’s Shanghai composite (SHCOMP) fall 0.65 per cent
Banks were the hardest hit sector in the entire region.
HSBC Holdings (HBCYF) 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 almost 7 per cent.
The sale came 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 at an astonishing rate on Friday, marking the biggest US bank shutdown since 2008.
Investors are now in doubt as to whether SVB’s death could trigger a wider banking sector meltdown. On Monday, US stocks were mixed, with banking stocks taking a hit.
“Investors fear that other financial institutions are sitting on significant unrealized losses on their balance sheets due to significantly higher interest rates,” DBRS Morningstar analysts said Monday.
The fear was “nevertheless fundamental,” they said.
US Treasury yields were sharply lower on Monday as investors flocked to safe-haven assets. The yield on the 2-year Treasury note briefly fell by more than 50 basis points, the biggest daily drop in decades.
“At the moment, markets are speculating on a Fed U-turn, but they are also pricing in a greater degree of contagion in the banking sector turmoil, which will ultimately weigh on risk sentiment,” ING analysts wrote in a research note on Tuesday.
Should the Federal Reserve meet market hopes and end its rate-tightening cycle, there would be ample room for market sentiment to rise, they said.
Other banking stocks in Asia Pacific also fell.
In Hong Kong, shares of Bank of China (Hong Kong) and Hang Seng Bank fell by 3.7% and 1.3% respectively. The pan-Asian insurance company AIA Group fell 4.7 per cent.
In Tokyo, Mitsubishi UFJ Financial Group, Japan’s largest bank, lost 8.4 percent. Sumitomo Mitsui Financial Group and Mizuho Financial Group both fell more than 7%.
In Seoul, KB Financial Group and Shinhan Financial Group fell 3.6% and 2.5% respectively.
In Shanghai, China Merchants Bank fell 1.2% and China Minsheng Banking Corp retreated 0.3%.
In Sydney, Macquarie Group retreated 3.1% and ANZ Group was 1.5% lower.