Cyprus turmoil triggers Asian market sell-off

Asian markets tumbled overnight and safe-haven bond yields fell following news EU member Cyprus is to impose an unprecedented bank levy on deposits held in the country.

Nearly every benchmark gauge in the Asia-Pacific region fell as Cypriot President Nicos Anastasiades bowed to demands by eurozone finance ministers to raise €5.8bn by taking a piece of every bank account in Cyprus.

The bank tax could be levied today if politicians sign it off.

However, the shock tax on deposit holders – which includes a large number of UK citizens – sent markets reeling amid fears it will spark a move to withdraw huge sums from across Europe.

Asian equity markets took a sizeable hit, with Japan’s Nikkei retreating 2.7% and Hong Kong’s Hang Seng tumbling 2.1%.

The wider MSCI Asia Pacific was also down 1.8% in Tokyo and headed for its biggest decline since July last year. Australia’s S&P/ASX 200 was also down around 2%.

Anastasiades delayed a vote on the measure in parliament until today, a day later than planned, as he seeks more time to convince politicians to back him.

In reaction to the news, the euro also dropped against the dollar to its lowest level this year. The single currency fell 1.3% to $1.29.

Bill Gross, who runs the world’s biggest bond fund at PIMCO, said on Twitter that the concern in Cyprus “moves risk-on trade to the back seat” and advised investors to “sell the euro as well.”

Moody’s said the move is a significant step toward limiting support for bank creditors across Europe and shows that policy makers will risk financial market disruptions to avoid sovereign defaults.

Treasuries and other safe havens saw bond yields come in sharply in reaction.

 

This article was first published on Investment Week

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