Asia report: Markets fall as investors digest Credit Suisse rescue

“Asian equity markets have started the week in the red as markets digest the emergency acquisition of Credit Suisse by its Swiss counterpart UBS, in a government-brokered deal,” said TickMill market analyst Patrick Munnelly.

“UBS is acquiring the beleaguered Credit Suisse for CHF 3bn, which will eradicate CHF 16bn of additional tier-one bonds.

“The Nikkei 225 was the Asian posterboy for banking sector stress, given the BoJ’s summary of opinions provided little in the way of additional information to markets.”

Munnelly said it was also worth noting that the Bank of Japan’s overnight dollar funding operations had no bids, suggesting little real stress in the system.

“The Hang Seng and Shanghai Composite have also seen softness,with the tech-heavy Hang Seng the standout underperformer, printing losses in excess of 3%.

“The Shanghai Composite was supported by Friday’s reserve ratio requirement cut by the PBoC in an effort to boost liquidity and support the economy, however, the central bank opted to maintain its benchmark lending rate at 3.65%.”

Regional equity markets form a sea of red

Japan's Nikkei 225 dropped 1.42% to 26,945.67, while the broader Topix index fell 1.54% to 1,929.30.

Major decliners on Tokyo’s benchmark included Isetan Mitsukoshi Holdings, down 4.94%; Kawasaki Kisen Kaisha, down 4.3%; and J.Front Retailing, down 3.94%.

In China, the Shanghai Composite slid 0.48% to 3,234.91, and the Shenzhen Component lost 0.27% to 11,247.14.

Beijing Dahao Technology Corporation tumbled 10.01% in Shanghai, and China United Network Communications dropped 9.59%.

Hong Kong's Hang Seng Index plummeted 2.65% to 19,000.71, with HSBC sinking 6.23%, WuXi Biologics falling 5.94%, and Hansoh Pharmaceutical Group retreating 5.93%.

South Korea's Kospi declined 0.69% to 2,379.20, with LG Corporation shedding 3.87% and DB Insurance losing 3.81%.

In Australia, the S&P/ASX 200 slipped 1.38% to 6,898.50, as Liontown Resources fell 9.39% and A2 Milk Company dropped 7.06%.

However, Australian gold miners outperformed, with Evolution Mining surging 10.08%, Kingsgate Consolidated rising 2.63%, and Newcrest Mining gaining 5.95% as gold prices traded near a one-year high.

New Zealand's S&P/NZX 50 contracted 1.37% to 11,564.75, with A2 Milk Company sliding 5.16% and Synlait Milk falling 4.91%.

In currency markets, the yen strengthened 0.5% on the dollar to last trade at JPY 131.19, while the Aussie was nearly flat with a 0.01% advance to AUD 1.4930, and the Kiwi weakened 0.33% against the greenback to change hands at NZD 1.6005.

Oil prices also weakened, with Brent crude futures dipping 0.99% on ICE to $72.26 per barrel, and the NYMEX quote for West Texas Intermediate declining 1.05% to $66.04.

UBS rescues Credit Suisse, PBoC stands pat on loan prime rates

Hogging the headlines was the news that UBS reached a deal to purchase rival Credit Suisse for $3.25bn, with regulators in Switzerland playing a crucial role in facilitating the deal to avoid further turmoil in the banking sector.

Credit Suisse saw a sharp decline in shares last week when the Saudi National Bank refused to commit to providing more funding.

Despite efforts by Credit Suisse and regulators, including a loan of up to CHF 50bn, shares dropped 25.5% by week's end.

Under the terms of the deal, Credit Suisse shareholders will receive one UBS share for every 22.48 Credit Suisse shares, creating a combined bank with $5trn in invested assets.

In Asia, Hong Kong regulators assured that Credit Suisse operations in the city would proceed as usual after the UBS takeover.

They said customers would be able to access their deposits and trading services, adding that the local banking sector's exposure to Credit Suisse was minimal, representing less than 0.5% of the sector.

For his part, Christopher Kent, assistant governor of the Reserve Bank of Australia, said domestic banks remained strong despite global concerns.

He highlighted the strength of Australian banks' balance sheets and their ability to continue issuing bonds.

The Monetary Authority of Singapore (MAS) meanwhile confirmed that the UBS takeover of Credit Suisse would not affect the stability of the city-state’s banking system.

MAS said Credit Suisse would continue to operate in Singapore without interruptions or restrictions.

In central bank action the US Federal Reserve, along with five other central banks, announced an increase in the frequency of their dollar swap line arrangements from weekly to daily.

The move was intended to ease strains in global funding markets and mitigate the effects on credit supply for households and businesses.

On the economic front, the People's Bank of China announced that it will maintain current loan prime rates (LPR) for both one- and five-year loans, following a 0.25 percentage point cut in the reserve requirement ratio (RRR) for nearly all banks last week.

It confirmed the one-year LPR would remain at 3.65%, and the five-year at 4.3%, with both rates consistent since August last year.

PBoC governor Yi Gang had described the current real rates as "relatively appropriate" during a meeting just before the National People's Congress.

Additionally, the Bank had previously maintained the one-year medium-term lending facility (MLF) rate at 2.75% for March.

Duncan Wrigley, chief China economist at Pantheon Macroeconomics, noted that the move came after the RRR cut, which will take effect from 27 March and lower the weighted average requirement to 7.6%.

“We see this as the Bank topping up commercial banks’ lending capacity, after significant credit extension to the real economy in January and February,” Wrigley said.

“Government bond issuance and long-term corporate loans were particularly strong, indicating that policy-sensitive investment sectors probably led credit demand.

“By contrast, private sector fixed asset investment barely grew in the first two months, with private companies more exposed to soft global demand.”

Finally, the Bank of Japan forecast that inflation could slow this year, following a decline in the country's consumer price index reading for February.

While the economy remained resilient, the central bank emphasised the importance of maintaining its monetary easing policy until its price stability target of 2% was within sight.

Reporting by Josh White for Sharecast.com.