Banking sector turmoil sparks uneven performance in Asian markets

May 05, 2023 (MLN): Asian stocks had a mixed performance on Friday in response to renewed fears of banking sector turmoil that led to a slide on Wall Street, as APP reported. 

All three major US indices ended the day lower, with regional bank shares experiencing a sharp decline following a quarter-point hike from the US Federal Reserve.

PacWest's shares fell 50.6%, First Horizon's slumped 33.6%, and Western Alliance lost 38.5%. Krishna Guha, Vice Chairman at Evercore ISI, warned that "the acute phase of bank turmoil may not be over, and policymakers need urgently to recognize that," as reported by Bloomberg.

Futures for US equities were rebounding cautiously on Friday morning, while futures for markets in Europe, which also fell on Thursday after the European Central Bank increased its main interest rate, were unevenly recovering.

In Asia, Hong Kong rose more than 1% at one point, while Shanghai declined. Sydney and Taipei were up, while Wellington, Jakarta, Singapore, Kuala Lumpur, and Manila were down. Tokyo and Seoul were closed for the holidays.

Banking shares were the hardest hit, with PacWest's sell-off worsening due to reports that the bank was considering selling or raising capital after the recent collapses of other mid-sized lenders. The bank assured investors that it had not experienced unusual deposit flows and that its cash and available liquidity remained strong, but its shares still plummeted. Other US regional banks that suffered significant drops included KeyCorp, Comerica, and Zions. Stephen Innes of SPI Asset Management described the situation as "a highly coordinated and predatory short-sellers landscape... with short sellers in battalion fashion moving from one weak link in the daisy chain to the next."

The trend is likely to persist, according to Oanda's Edward Moya, who wrote in a note that "financial stability concerns are not going away anytime soon, and that will continue to fuel calls that we are headed towards a recession that will be much more hard-hitting than the mild one some are expecting."

He added that "selling financials is an easy trade as interest rates are too high and will probably remain there thanks to the Fed, which will also continue to drive financial stability concerns," and warned that "more banks are at risk."

Meanwhile, oil prices appear to have stabilized but are still in a hole after falling sharply in recent days on expectations of weaker demand due to an economic slowdown.

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