Shares of Asian banks tanked yesterday as stock markets closed mixed as investors considered US regulators' actions to backstop both financial institutions and deposits following the collapse of Silicon Valley Bank (SVB) could stem further broader risks.
Japan led losses in the region with the Topix index dropping 1.51% and the benchmark Nikkei 225 index losing 1.11%. Shares of SoftBank Group closed 1.67% lower, along with sharp declines in megabanks as Mitsubishi UFJ Financial Group dropped 3.47% and Sumitomo Mitsui Financial Group sank 4.16%.
In Australia, S&P/AXS200 was down 0.5% with banks seeing the declines. The Stock Exchange of Thailand lost 1.66% late yesterday afternoon with Kasikornbank (Kbank) slumping by as much as 5.88%. Shares of Bangkok Bank (BBL) tumbled 3.16% while Siam Commercial Bank (SCB) sank 2.68%.
In South Korea, both the Kospi and Kosdaq closed higher yesterday while Hong Kong's Hang Seng index and China's stock exchanges outperformed other Asian bourses with significant gains as traders welcomed the mainland's economic leadership team.
"The closure of SVB and, more recently, Signature Bank, triggered investors' fears about possible runs on other US banks and another round of banking crisis," said Rakpong Chaisuparaku, an analyst at KGI Securities.
On Sunday, US authorities unveiled sweeping measures to rescue depositors' money in full from SVB.
The Federal Reserve (Fed) also said it would make extra funding available to help other institutions meet customer needs while President Joe Biden vowed to hold "fully accountable" the people responsible for "this mess".
"Although the Fed and the Treasury Department came out this morning with a backstop plan to provide liquidity to embattled banks and also ensure individual depositors can access their money, the initial market reaction should remain negative as the US banking situation still looks fragile in the near-term," Mr Rakpong wrote in a report yesterday.
US banking fears during the weekend also significantly impacted market expectation for the US interest rate. Yesterday morning, Fed Fund Futures lowered the US terminal interest rate to 5.25% from 5.75% and expected only a 0.25% hike at its meeting on March 22.
Meanwhile, the SET revealed yesterday that foreign investors net sold 43.5 billion baht in February alone due to concerns over the interest rate hikes and disappointing financial results of listed companies in the fourth quarter of 2022.
Despite easing US inflation, a signal of a longer than expected fight to bring inflation back to the target range stoked concerns that the Fed will continue tightening monetary policy for an extended period, said SET's senior executive vice-president Soraphol Tulayasathien.
With the robust US labour market, investors are bullish on a no landing scenario which suggests the world's largest economy would entirely avoid recession and this affects capital flows in the region, he said.
"Several stock markets in the region saw capital outflow in February due to the stronger US dollar propelled by the higher interest rate expectation," said Mr Soraphol.
At the end of last month, the SET index fell 2.9% from the previous month to close at 1,622.35 points. The benchmark index also went down 2.8% from the end of 2022. Technology, consumer products, agro and food industry, property and construction, and services industry groups outperformed the SET Index in the first two months of 2023.
The SET's and Market for Alternative Investment's (MAI) average daily trading value in February dropped 32.3% from the same period a year before to 67 billion baht (US$1.91 billion). Foreign investors snapped a four-month net buying streak in February, becoming net sellers to the tune of 43.5 billion baht.
In 2022 foreign investors had a net buy in the Thai stock market of around 196 billion baht, betting on the Thai market's good prospects of organic growth from being the most popular tourist destination, said Mr Soraphol.
"Foreign funds will stay outside for a while or until the US's interest rate policy is cut or decreases," said SET president Pakorn Peetathawatchai.
