Major Asian stock exchanges sank on Wednesday on renewed investor concerns that a softening US economy and troubles with that country's regional lenders could slow Asia's growth.
The Stock Exchange of Thailand (SET) fell 1.4%, the biggest single-day drop in nearly a month, in early trade on Wednesday, tracking overnight losses on Wall Street ahead of the Federal Reserve's decision on interest rates later in the day. The SET Index recovered later in the day.
Hong Kong's Hang Seng led losses in the region, falling 1.18%, while South Korea's Kospi and Australia's S&P/ASX 200 dropped 0.91% and 0.96%, respectively. Markets were shut in Japan and mainland China for holidays.
Investors dumped big-cap energy stocks, following a 5.3% drop in the US oil price, the biggest decline since July, in a sign of unease about global growth.
Bank shares were also big losers on revived fears for the sector spurred by the failure of First Republic Bank and its takeover by JPMorgan Chase. US regional lenders PacWest Bancorp and Western Alliance Bancorp both slid at least 15%.
Kobsak Pootrakool, senior executive vice-president of Bangkok Bank, said PacWest Bancorp is now feeling the heat, with share prices sliding by 90% from US$51.1 at the beginning of 2022 to $5.50 on May 2.
Since last Friday, when First Republic Bank failed, PacWest's share price has dropped by about 50%, following its expansion during the pandemic in both deposits and loans.
Other regional banks including Western Alliance were also under pressure until they had to stop trading on Tuesday.
"Major shareholders of PacWest Bancorp and Western Alliance learnt an expensive lesson from the failure of First Republic Bank, Silicon Valley Bank and Signature Bank. If they still hold shares of those banks and a similar bank run happens, they will have nothing left, rushing to make an exit," said Mr Kobsak.
"It remains to be seen if PacWest Bancorp can come back."
Nunmanus Piamthipmanus, chief investment officer of SCB Asset Management, said small US banks and some regional banks mainly focus on specific businesses, especially mortgages, for which interest rates are fixed at 1-3%.
The Fed has lifted US rates continuously to about 5%, making these banks suffer heavy losses.
"Rising Fed rates have caused money to flow out of small specialised banks to the money market. It is possible other weak banks could face liquidity shortages and fail," she told the Bangkok Post.
Tawatchai Wongratanasirikul, head of investment strategy at BCAP Asset Management, said it is likely the US economy will be much weaker in the latter half of 2023, although first-quarter GDP beat the forecast, growing 1.1% year-on-year.
While US inflation has eased and may fall to 3% by the end of this year, it is still much higher than the Fed's target of 2%, said Mr Tawatchai.
"Although the Fed could stop raising rates after this month's meeting until year-end as forecast, the high rate and possible bank runs could put pressure on the weak US economy for the rest of the year," he said.
Apaporn Sawangpak, head of research at DBS Vickers Securities (Thailand), said a big storm is likely to hit the Thai economy in the form of a potential global recession.
"Thailand relies on the global economy, both in terms of exports and tourism," she said.
Thai GDP growth is forecast at 3% this year, much lower than the average for Asia of 7%.
"How will the Thai economy withstand external demand collapse?" said Ms Apaporn.