Asia-Pacific benchmark index wipes out all of its gains for 2023

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Asia-Pacific’s leading index erased year-to-date gains and is now flat in 2023 as bank stocks led declines on Tuesday.

The MSCI Asia Pacific Index hit a low of 155.44 in afternoon trade – down more than 9% from its Feb. 2 high of 171.26 and erasing year-to-date gains. The index closed at 155.74 on the last trading day of 2022.

In January, the index entered a bull market in the second week of trading of the year, fueled by optimism over China’s reopening.

MSCI’s broadest index of Asia-Pacific stocks outside Japan, meanwhile, traded 1.47% lower on Tuesday afternoon, also marking fresh yearly lows. Last month, traders saw scope for the index to rally further, despite short-term volatility.

Markets continued to fall sharply on Tuesday on concerns over a spillover effect from the Silicon Valley bank collapse, even after US regulators stepped in to protect depositors over the weekend.

“Fears of a global economic crisis continue to put pressure on the region, which is more value-oriented,” IG analyst Yeap Jun Rong said in a note on Tuesday.

On Tuesday, bank stocks in Japan fell sharply, weighing on the broader Topix, which led the sell-off in Asia-Pacific. The index ended 2.7% lower as financials fell 4.65%, data from Refinitiv showed.

Tokyo-listed Mitsubishi UFJ Financial Group fell 8.59%, Sumitomo Mitsui Financial Group lost 7.57% and Mizuho Financial Group lost 7.14%. Tech giant SoftBank Group was also down more than 4%.

Yeap also noticed indices like that Straits Times Index in Singapore has almost 45% of its weighting in bank stocks. shares of DBS, United Overseas Bank And Oversea Chinese Banking Corporation guided declines Tuesday.

On Monday, Singapore’s Monetary Authority said its exposure to failed US banks was “insignificant”.

“Singapore banks are well capitalized and conduct regular stress tests against interest rate and other risks,” it said, adding that their liquidity positions are healthy and supported by a “stable and diversified funding base.”

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Nomura equity strategists, including Chetan Seth, reiterated their February call and continue to expect further gains for the index.

Strategists wrote in a note Monday: “While we don’t believe there is a material fundamental impact on Asian equities from troubles in the US banking sector, there is always a risk that some ‘closet skeletons’ will emerge.”

“We are inclined to believe that these issues will not be systemic to the health of the banking sector,” he said.

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‘Special situation’

Frank Benzimra, head of Asia equity strategy at Societe Generale, said an increase in systemic risk is widely viewed as part of a pattern at the end of a Fed cycle.

“When inflation rises, the first-order effect is higher interest rates, the second is an increase in systemic risk — the SVB episode is part of that framework,” he said, adding that threats to financial stability “typically emerge in the late-stage Fed -Cycle.”

“However, SVB is in a very special situation in terms of its funding as it is not subject to the Coverage and Funding Ratios (LCR/NSFR rules) and MBS/UST portfolios are available for sale,” he said. Asia-Pacific benchmark index wipes out all of its gains for 2023

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