Silicon Valley Bank Stirs Pressure on Asia Pacific Markets

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Silicon Valley Bank (SVB), a 40-year-old bank headquartered in California, is widely known as the bank favoured by startup tech companies. However, just recently, SVB shook the financial world when bad investment decisions finally caught up with it. SVB’s demise has started to ripple into the markets.

SVB was the 16th largest bank in the US and saw a boom during the pandemic when the startup tech sector prospered. According to Guilia Carbonaro, a reporter for Newsweek, “As more and more homebound people spent money on tech gadgets and similar items, tech companies used SVB to hold their cash, much of it used for payrolls and business expenses.”

Carbonaro narrated that SVB invested the money received from the tech startup companies in long-dated US government bonds. Typically, these bonds are safe, but several factors that shaped the global economy into what it is now changed all that.

The Fed decided to jack up interest rates to slow down inflation, and this caused the price of SVB’s bonds to plummet. This, together with the abrupt slowdown of growth in the tech sector, caused the bank to fold. Many tech startup companies began cashing out, forcing the bank to sell its bonds.

The bank was forced to close shop as the federal government stepped in. As the bank collapsed in just 48 hours, its effects began to ripple in the global markets. Days after SVB collapsed, the Asia Pacific markets tumbled in a volatile session.

According to Bay Street journalist Glenn Wilkins, Wall Street investors suffered sharp losses overnight due to the fallout of failed US banks. Wilkins added, “The Nikkei 225 in Japan collapsed 610.92 points, or 2.2 per cent, to 27,222.04, as shares of Softbank Group fell as much as 3.5 per cent to its lowest point since October last year in early trade. In Hong Kong, the Hang Seng Index sagged 448.01 points, or 2.3 per cent, to 19,247.96. Australian indexes slid, largely led by losses in the banking sector.”

Many analysts believe that the collapse of the tech bank will not likely impact the Asian markets. However, this should be seen as a warning for economies that have yet to raise their interest rates aggressively. CMC Markets market analyst Tina Teng noted that Chinese and Japanese policymakers should be mindful of managing their interest rate risks, as credit risks may be the major issue the Asian markets may face.

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