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Asia-Pacific’s leading index erased its year-to-date gains and is now flat in 2023 as bank stocks led declines Tuesday.
The MSCI Asia Pacific index hit a low of 155.44 in afternoon trade – marking a decline of greater than a 9% from its Feb. 2 high of 171.26 and wiping out its gains for the 12 months to this point. The index closed at 155.74 on the last trading day of 2022.
In January, the index entered a bull market through the second trading week of the 12 months, fueled by optimism from China’s reopening.
MSCI’s broadest index of Asia-Pacific shares outside Japan meanwhile traded 1.47% lower Tuesday afternoon, also marking recent lows for the 12 months. Last month, traders saw room for the index to rally further despite near-term volatility.
Markets continued to see sharp losses Tuesday on concerns of a spillover effect from Silicon Valley Bank’s collapse, even after U.S. regulators stepped in to guard depositors over the weekend.
“Concerns of a world economic rout proceed to place pressure on the region, that are more value-focused,” IG analyst Yeap Jun Rong said in a Tuesday note.
On Tuesday, bank stocks in Japan declined sharply, weighing on the broader Topix, which led the sell-off in Asia-Pacific. The index closed 2.7% lower as financials dipped 4.65%, Refinitiv data showed.
Tokyo-listed shares of Mitsubishi UFJ Financial Group fell 8.59%, Sumitomo Mitsui Financial Group shed 7.57% and Mizuho Financial Group dropped 7.14%. Technology giant SoftBank Group also saw losses of greater than 4%.
Yeap also noted indexes resembling the Straits Times Index in Singapore has near 45% of its weightage in bank stocks. Shares of DBS, United Overseas Bank and Oversea-Chinese Banking Corporation led declines Tuesday.
On Monday, the Monetary Authority of Singapore said its exposure to failed U.S. banks was “insignificant.”
“Banks in Singapore are well-capitalized and conduct regular stress tests against rate of interest and other risks,” it said, adding that their liquidity positions are healthy and supported by a “stable and diversified funding base.”
Nomura equity strategists including Chetan Seth reiterated their February call and still expect more gains for the index.
Strategists wrote in a Monday note, “Although we don’t think there may be any material fundamental impact on Asian stocks from US banking sector issues, there may be at all times risk of some ‘skeletons emerging from the closet.'”
“We’re inclined to imagine that these issues won’t be systemic to the health of the banking sector,” he said.
‘Special situation’
Societe Generale’s head of Asia equity strategy Frank Benzimra said an increase in systemic risk is widely seen as a part of a pattern at the top of a Fed cycle.
“When inflation rises, the primary order effect is higher rates, the second being an increase in systemic risk – the SVB episode is an element of this framework,” he said, adding that threats to financial stability “typically happens on the late stage of the Fed cycle.”
“Having said that, SVB may be very much a special situation when it comes to its funding, not being subject to coverage and funding ratios (LCR/NSFR rules), and MBS/UST portfolios being Available-For-Sales,” he said.
