Asian stocks slide as financial sector fears linger

March 20, 2023 (MLN): Asian equities recorded significant losses following a sell-off in New York, despite central banks pledging to provide liquidity to troubled lenders.

The collapse of Silicon Valley Bank, Signature Bank, and Silvergate earlier this month triggered fears of contagion across the industry as worried customers withdrew their cash.

In response, US authorities promised support for other lenders and depositors, while Wall Street titans including JP Morgan, Bank of America, and Citigroup pledged to inject $30 billion into under-pressure lender First Republic Bank.

However, fears of another financial crisis flared up again when the biggest shareholder in Credit Suisse announced that it would "absolutely not" increase its stake in the bank after its annual report cited "material weaknesses" in internal controls.

Credit Suisse later announced that it would borrow nearly $54 billion from Switzerland's central bank to provide support. However, this was not enough to lift confidence, and on Sunday, UBS announced that it would buy the troubled bank for $3.25 billion, following crunch talks aimed at stopping a wider international banking crisis.

The move was welcomed in Washington, Frankfurt, and London.

The Federal Reserve's latest policy meeting, which ends on Wednesday, is now eagerly awaited by investors.

There is speculation that the Fed will pause its interest rate hikes to provide stability to the markets. Observers expect at least one more increase but possibly a hold afterward, while there is a growing belief that cuts could be announced before the end of the year.

Data showing that bank borrowing from the Fed's discount window hit a record high of more than $150 billion for the week ending March 15 has led analysts to suggest that the financial sector is under stress. While some believe that avoiding a rate hike could address the financial troubles in the banking system, others warn that it could lead to a further intensification of inflation pressures and more bond market volatility down the road.

Oil prices made very little headway in clawing back the big losses suffered last week on worries about demand as traders fret over a possible recession. Meanwhile, the Chinese central bank cut the amount of cash banks must keep in reserve, hoping to boost the country's economy.

Despite this, Hong Kong fell over two percent, with heavyweight HSBC off four percent. Tokyo, Sydney, Seoul, Singapore, Taipei, Wellington, Manila, and Jakarta were also in the red.

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