Asian equities join US banking rally after SVB collapse

Equities in Asia rose on Wednesday following a rebound in US banking stocks, as measures from regulators boosted confidence in the financial sector after the collapse of Silicon Valley Bank.

Japan’s Topix added 0.9 per cent in morning trading, South Korea’s Kospi added 1.9 per cent and Australia’s S&P/ASX 200 gained 0.6 per cent. Hong Kong’s Hang Seng index rose 1.6 per cent and mainland China’s CSI 300 gained 0.4 per cent.

The Topix Banks index gained 3.9 per cent after suffering its steepest decline in three years on Tuesday. Japanese regional banks First Bank of Toyama and Bank of Kochi rose the most, adding 5.2 per cent and 5.4 per cent, respectively.

US stocks rebounded on Tuesday after a sharp sell-off in the previous session triggered by concerns of contagion from the collapse of SVB and new data showing that inflation had slowed but was still high at 6 per cent.

The stubbornly high inflation data comes at a tricky moment for the Fed as it contends with bank failures and broader concerns about financial stability, increasing speculation that it will have to pause the ascent of its interest rate increases earlier than expected.

Bank stocks rallied the most, with shares in First Republic Bank closing up by more than 25 per cent.

The KBW Nasdaq Bank index closed up 3.2 per cent after falling 12 per cent on Monday. US regional banks had dropped sharply despite a promise from President Joe Biden that regulators would do “whatever is needed” to protect depositors.

The benchmark S&P 500 closed up 1.6 per cent, while the tech-heavy Nasdaq Composite gained 2.1 per cent.

On Monday, Japanese investment bank Nomura forecast the Fed would cut rates by 25 basis points at its meeting later this month. But investors pulled back from that view on Tuesday after the release of US inflation data.

The yield on the two-year US Treasury note, which closely tracks interest rate expectations and moves inversely to price, was up 0.7 percentage points at 4.29 per cent on Wednesday, climbing higher after experiencing its biggest one-day drop since 1987 earlier this week.

The yield on the 10-year note, which underpins global borrowing costs, rose 0.05 percentage points to 3.68 per cent.

Oil prices rose from a three-month low as sentiment recovered from the initial shock of the SVB collapse. West Texas Intermediate, the US benchmark, added 1 per cent to $72.02 per barrel.