Asian markets breathed the sigh of a relief rally on Wednesday, as the fallout from the failure of SVB Financial Group (SIVB) appears contained.
It's green all across the screen in Asia today, albeit with modest gains, after heavy selling on Tuesday. Markets have yet to regain all their lost ground but the rot looks to have stopped.
Today, the biggest gains are coming from the financial center of Hong Kong, where the Hang Seng Index advanced 1.5% having sunk 2.3% the day before. South Korea's tech- and export-driven market saw the Kospi move up 1.3%, following Tuesday's 2.6% fall.
Singapore, the financial hub for Southeast Asia, is also up 1.3% at the close, to redress some of the 1.3% fall for the Straits Times Index at the open on Tuesday. But Singapore stocks had already bounced back by yesterday's finish. While most Asian markets are left a little lower today than before SVB's failure after the Asian close on Friday, the Singapore index has virtually reclaimed all lost ground.
Japanese bank stocks have suffered alongside their U.S. brethren, with investors concerned that they also hold large amounts of U.S. Treasuries, like SVB. But they bounced back on Wednesday, particularly large multinational banks that often have U.S. cross-listings.
Mitsubishi UFJ Financial Group T:8306 and (MUFG) leapt 4.7%, Sumitomo Mitsui Financial Group T:8316 and (SMFG) jumped 3.1%, Mizuho Financial Group T:8411 and (MFG) ended up 2.0%, and Nomura Holdings T:8604 and (NMR) added 1.3%.
The broad-market Topix ended up 0.7% in Tokyo, although the Dow-like Nikkei 225 ended virtually flat, up 0.03%. In mainland China, the CSI 300 is also essentially flat, up 0.1%. Australian stocks, in the form of the S&P/ASX 200, ended the day up 0.9%.
Investors are carefully watching shares of Tokyo-based Softbank Group T:9984 and (SFTBY) , which is such a major tech investor, with the stock down 12.8% since Thursday's close. As of yet, it's not yet panic selling.
There should be limited direct impact in Asia from the failure of Silicon Valley Bank, but the collapse undermines confidence in the tech sector, and there's always some knee-jerk selling as investors weigh the likelihood of balance-sheet contagion.
SVB was particularly popular with Chinese startups, which say they will struggle to match the bank's level of service. Asian companies are at least reassured that there are guarantees on the bank's deposits. SVB was operating offices out of the "Chinese Silicon Valley," Shenzhen, as well as Hong Kong, Shanghai, Beijing and the Indian tech hub of Bangalore.
Its China offices date as far back as 1999 but weren't initially making loans. They instead provided customer support and advisory services to Chinese tech companies, as well as helping its Silicon Valley clients to expand in China. It wasn't issuing credit until it set up a joint venture in 2012 with Shanghai Pudong Development Bank.
That joint venture (JV), SPD Silicon Valley Bank, issued a statement here (only in Chinese) stressing that its operations are "stable" since it is a China-registered bank with an "independent balance sheet." The JV had US$3.1 billion in assets as of last June, the last figures available, but netted a loss of US$798,000 in the first six months of 2022. It blames the pandemic as well as poor capital-markets conditions.
While state-owned Shanghai Pudong Development Bank could potentially take over the Chinese joint venture - in Britain, HSBC HK:0005 and (HSBC) bought SVB's U.K. operations for £1 - it's not clear how that transaction will work. The U.S. parent company has been bundled into a "bridge bank" to transition away from the shuttered entity. So there's some cross-border legal work to carry out in two languages, if the Shanghai bank wants to take on the Chinese loan book at all.
While the Chinese JV may be separate, there's no doubt it traded on the Silicon Valley Bank name, which carries a strong cachet in Asia. That's particularly true in China, where the JV was the first tech-focused bank.
You may recall that Alibaba Group Holding HK:9988 and (BABA) figurehead Jack Ma first fell afoul of the Chinese Communist Party for alleging that the Chinese banking sector was not entrepreneurial enough, and had a "pawnshop" mentality. But he had a point. There's no doubt that lending from China's big banks favors state-owned and large entities. It has been hard for startups to find finance.
SVB made it easy for Chinese companies to open U.S. dollar accounts so they could raise dollar financing. The Chinese entity, as the first tech-specific entity in China as well as the first Sino-U.S. joint venture bank, quickly became the "go-to" bank for startups and early-stage ventures. Some of those companies also opened U.S. accounts directly with SVB in California.
Many of those early-stage Chinese companies as a result had a hefty chunk of their cash concentrated in one bank. While some tech entrepreneurs reported that wire transfers failed or they were unable to access SVB's site as the bank collapsed, companies are now saying they're able to withdraw their funds. Thanks to a guarantee orchestrated by U.S. Treasury Secretary Janet Yellen, all depositors have had access to their full funds as of Monday.
However, the bank collapse leaves a hole that neither Chinese nor U.S. traditional banks are currently positioned to fill. It's likely that Asian startups will require a domestic account for homegrown capital and a separate U.S. account if they want to access dollar financing. There's an opportunity, albeit a risky one given the current downturn in the tech sector, for a specialized lender to step into SVB's shoes in Asia.
