Asian markets plunge on Credit Suisse contagion fear

March 16, 2023 (MLN): Asian markets on Thursday experienced a sharp decline, with banks leading the downturn. The primary cause of the market slump was fear over Credit Suisse's troubles, which swept trading floors.

The bank's shares fell by almost 25% after its largest shareholder, Saudi National Bank, announced that it would not increase its stake in the firm.

This news has heightened concerns over the contagion effect of the collapse of two regional US banks over the weekend, which triggered a sell-off across equities and intensified concerns about a global recession.

The fear and panic surrounding Credit Suisse's troubles have spread beyond the banking sector, with broader markets experiencing significant losses. In Europe, London, Paris, and Frankfurt all lost more than 3%, while Hong Kong and Tokyo gave up more than 2%. Additionally, markets in Sydney, Shanghai, Seoul, Singapore, Wellington, Taipei, Manila, and Jakarta were also down.

Investors were already grappling with Federal Reserve interest rate hikes and stubbornly high inflation, and the recent events have compounded their problems. The collapse of SVB has been widely linked to the sharp rise in borrowing costs over the past year, leading to uncertainty about the future of the Fed's tightening campaign. Some commentators expect officials to lift rates once more next week but possibly hold afterward, while there is a growing belief that it could even announce cuts before the end of the year.

The prospect of a global recession has battered oil prices, with traders concerned about the impact on demand. Both main oil contracts edged up slightly on Thursday, but this came a day after they dropped around 5%. The commodity remains wallowing around 15-month lows.

The market turmoil has caused a lot of anxiety among investors, with many worried about the global economy's future. "Markets could get messy amid the fallout from Silicon Valley Bank's collapse, alongside ongoing uncertainty over the future path of the global economy and interest rates," said Marty Dropkin of Fidelity International.

Despite some positive news showing that US wholesale prices fell on-month in February, raising hopes that this could filter through to consumer prices, there remains a lot of uncertainty in the market.

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