Cyprus bank levy spooks Hong Kong investors

Shares fall 2 per cent – the most in a month – as plan to tax deposits triggers panic selling over fears of financial instability in Europe

PUBLISHED : Tuesday, 19 March, 2013, 12:00am
UPDATED : Tuesday, 19 March, 2013, 5:24am

Hong Kong stocks had their largest fall in more than a month yesterday, led by HSBC, as plans by Cyprus to levy an unexpected tax on bank deposits triggered fresh worries over financial stability in Europe and panic selling across the board.

Global markets stayed on the edge last night, with the Standard & Poor's 500 Index dropping 0.6 per cent and the Dow slipping 0.3 per cent in the US, while European stocks retreated for a second day. The Stoxx 600 fell 0.5 per cent in London.

Bart Oosterveld, managing director of sovereign risk at Moody's Investors Service, said: "Even if the risks of contagion in this case are limited, the decision to impose losses on depositors signals euro-area policymakers' willingness to risk triggering wider financial market disruptions in pursuit of other policy goals."

The benchmark Hang Seng Index fell 450 points, or 2 per cent, to finish at 22,083.36, the lowest in more than four months. The Hang Seng China Enterprises Index lost 2.05 per cent.

The financial sector was hit most, with Europe's biggest bank, HSBC, losing 2.27 per cent to finish at HK$84.15.

Didier Duret, chief investment officer at ABN Amro Private Bank, said the systemic risk to European banks, including HSBC, was limited.

"Direct exposure of European banks [to Cyprus] is rather limited and largely provisioned. The channel of risk is mainly through Greek banks and via some possible exposure by money market funds," he said.

The Hang Seng Index fell below the psychological level of 22,000 during yesterday's trading. The index has erased all its gains this year, with a decline of 2.53 per cent in the year to date.

One in five companies fell yesterday on the broader Hang Seng Composite Index, which tracks 348 listed firms. Esprit Holdings fell 2.15 per cent to HK$9.10.

Capital shifted to consumer staples as investors' sentiment turned more conservative. Want Want China saw its shares rise 1.2 per cent.

Franki Chung, Asia chief investment officer at MEAG Hong Kong, said he was not going to find bargains in the market at this moment even after such a great fall. "Cyprus's bailout warns me of a possible spill-over effect to other EU nations. This is surprising and risky."

Other Asian markets also fell. Tokyo's Nikkei index lost 2.7 per cent, and the Shanghai Composite Index fell 1.7 per cent.

Mainland banks were hammered after Moody's pointed to a greater default risk as regulators said 20 per cent of banks' loans were risky.

China Construction Bank fell 2.23 per cent to HK$6.13.