Asia’s major stock indexes rallied on Tuesday as fears of a banking crisis eased following the state-backed rescue deal for Swiss lender Credit Suisse over the weekend.
The panic that spread across trading floors on Monday had begun to fade but the mood remained fragile with traders unsure how US Federal Reserve policymakers will respond this week.
China and Hong Kong shares rose, as investors digested the fallout from the Credit Suisse drama, although the complete write-off of the troubled bank’s additional tier 1 bonds caused sell-offs in similar debt.
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Hong Kong’s leader John Lee said he was confident the Credit Suisse situation wouldn’t affect the city in a significant way, adding that the local banking sector was “very resilient”.
Hong Kong-listed financial shares recouped some losses from the previous session, with HSBC Holdings trading 2.5% higher.
China stocks, largely immune from the US and European banking crisis due to strict capital controls and the country’s relatively sound banking system, were aided by fresh signs of economic recovery.
China’s blue-chip CSI300 Index closed up 1.1%, while the Shanghai Composite Index gained 0.64%, or 20.74 points, to 3,255.65. The Shenzhen Composite Index on China’s second exchange rallied 1.57%, or 32.33 points, to 2,085.98.
Hong Kong’s benchmark Hang Seng Index jumped 1.36%, or 258.05 points, to 19,258.76, while the China Enterprises Index climbed 1.2%.
Tech stocks traded in Hong Kong rallied 2.5%, with Bilibili Inc up as much as 9.2% to a four-week high, after China’s online gaming regulator on Monday granted licences to 27 foreign games in March, signalling further policy easing.
Elsewhere across the region, Singapore, Seoul, Taipei, Manila, Mumbai, Bangkok and Jakarta were also in positive territory. Sydney rallied thanks to advances for National Australia Bank and Westpac.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4%. Japan’s markets were closed for a holiday.
Credit Suisse Bonds Shockwave
The US Fed begins a two-day meeting later in the day and after a wild few sessions US interest rate futures pricing implies that a peak in rates is either imminent or already reached, with newfound stability concerns to push inflation-fighting aside.
The wipeout of some Credit Suisse bondholders has already sent a shockwave through bank debt, while the speed with which trouble spread from regional US banks to humble a big systemic bank in Europe has markets rattled.
“While the last global financial crisis played out over 18 months, today’s crisis is only 10 days old and has already led to the collapse of some US regional banks and the arranged marriage of UBS and Credit Suisse,” said bank analyst Jonathan Mott at Barrenjoey in Sydney.
“While global regulators are acting with pace, this appears to be a game of ‘whack-a-mole.'”
San Francisco lender First Republic is emerging as the next pressure point. Its share price halved on Monday on worries that $30 billion in deposits placed last week by bigger banks would not be enough to shore up its stability.
The broader path for rates, meanwhile, is set to become clearer later in the week when the Fed and Bank of England set policy levels.
Fed funds futures imply about a 1-in-4 chance the Fed pauses on Wednesday, according to CME’s FedWatch tool, while markets are divided evenly on the prospect of a hike in Britain.
“The banking sector’s near-death experience over the last two weeks is likely to make Fed officials more measured in their stance on the pace of hikes,” said Standard Chartered’s head of G10 FX research, Steve Englander.
In foreign exchange the US dollar steadied after slipping overnight. It last bought 131.30 yen and held at $1.0711 per euro.
In commodity markets, demand jitters have Brent crude futures pinned below $80 a barrel and they were last at $73.15. Gold hit a one-year high of $2,009 an ounce on Monday, before easing to $1,980 on Tuesday.
Key figures
Tokyo – Nikkei 225 <> CLOSED
Hong Kong – Hang Seng Index > UP 1.36% at 19,258.76 (close)
Shanghai – Composite > UP 0.64% at 3,255.65 (close)
London – FTSE 100 > UP 1.33% at 7,502.50 (0932 GMT)
New York – Dow > UP 1.20% at 32,244.58 (Monday close)
- Reuters with additional editing by Sean O’Meara
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