Asian Banks Attracting Investors Amid US Banking Sector Volatility: Report

The report cites a Citibank analysis saying that Asian financial markets have tightened less than compared to the US and most Asian currencies have appreciated compared to the US dollar

The banking sector volatility in the US and elsewhere prompted investors to take their money to China and Asia's other emerging economies, according to a Bloomberg report. The report cites several analyses by global banks and asset management companies saying that investors believe the Asian markets are in a better position to deal with the turmoil. 

The report cites a Citibank analysis saying that Asian financial markets have tightened less than compared to the US and most Asian currencies have appreciated compared to the US dollar.

Since March 10 — the day Silicon Valley Bank collapsed — shares of financial companies in Asia, excluding Japan, have increased, while the US banking indies have decreased by almost 10 per cent during the same time period, the report noted. 

Last month, a series of banking institutions' collapses shocked the global financial sector. The Silicon Valley Bank was acquired by California's banking regulator after a bank run led by venture capitalists. Later, in Europe, one of the most prominent banks, Credit Suisse, was merged with rival UBS Group as the bank's bad balance sheet led to a crash in its stock value. 

Johanna Chua, head of Asia-Pacific economic and market analysis at Citibank, told Bloomberg, "We think Asia still remains relatively well-insulated. A US-centric slowdown means the US dollar will track lower, which is more supportive of capital flows in Asia.”

A generally softer turn in monetary policy, with central banks in Australia, South Korea, Indonesia, and India among those halting their tightening cycles, is one of the factors cited by economists as favoring the Asia-Pacific region, the report said. Adding that the main draw for investors is China. 

According to data from TD Securities, it is reflected in the $5.5 billion in money that poured into emerging-market equities funds over the four weeks leading up to the end of March, with Asia leading the way. China received more than 70 per cent of that money. Developed-market equities saw net withdrawals of $8.6 billion at the same time, with the US being the hardest hit.

This week, the Asian Development Bank said that while advanced economies are contributing to a gloomier outlook for the world, Asia's developing economies, headed by China, are on track for higher growth and slower inflation this year and next.

According to Citi's Chua, domestic service-led economies like India and the Philippines "look relatively more resilient" to a shock to global growth than Hong Kong and Thailand, which profit from China's re-opening. Singapore, Vietnam, South Korea, Malaysia, and Taiwan are examples of "small, open economies" that would probably be more susceptible to these spillovers. The banking turmoil may also mean that Asian tech money invested in the US could now begin to make its way back. 

Additionally, Asia isn't completely protected from the financial turmoil that started in the US. According to Jonathan Kearns, chief economist at Sydney-based investment management company Challenger Ltd. and a former Reserve Bank of Australia official, "the outlook really depends on whether things stabilise in Europe and North America. If there is some sort of ongoing unrest, it will also spread to Asia."