HONG KONG -- Shares in Asian banks, led by Japan's MUFG and China's ICBC, tumbled on Tuesday as investors, already grappling with a bear market, dumped the stocks on reports about regional bank exposure to two troubled top US mortgage lenders.
But the selling spree is unlikely to continue thanks to the relatively more stable fundamentals underpinning banks and insurers in Asia, analysts and fund managers said.
Financial shares in Japan, China and Taiwan lost between 4.0 and 7.0 percent on mounting worries over the health of the US banking sector after Friday's collapse of IndyMac Bancorp, the third-largest US bank failure.
The concerns overshadowed earlier optimism over the US government's plan to bail out its home financers Fannie Mae and Freddie Mac.
Asia and the United States have decoupled as far as their real economies, said Elan Cohen, a Singapore-based portfolio manager with JPMorgan Private Bank, which manages over $400.0 billion in discretionary funds worldwide.
"What has not decoupled is the sentiment. In fact, Asian markets have declined far in excess of the US since this downturn started in October last year."
"Financials in Asia have strong capital ratios -- they have capital adequacy ratios far in excess of the US and far in excess of what is required by the BIS -- balance sheets are not impaired, it is really just a matter of sentiment," he said.
Cohen remains overweight on Asian stocks but is increasing the proportion of US financial stocks in his portfolio because he believes they have been oversold.
Japan's Nikkei daily newspaper reported Japan's three largest banks -- Mitsubishi UFJ Financial Group (MUFG), Mizuho Financial Group and Sumitomo Mitsui Financial Group -- together had about 4.7 trillion yen ($44.3 billion) in debt securities from Fannie and Freddie agencies as of the end of March.
Together, Fannie and Freddie finance about half of the homes in the United States. As US mortgage defaults continue to rise, investors have become concerned the two agencies might need more funding. However, many analysts have pointed out that the debt would ultimately have the backing of the US government if the agencies fail.
Koichi Ogawa, chief portfolio manager at Daiwa SB Investments in Tokyo, said the debt was not "subprime" but backed by mortgages made to borrowers with strong credit.
"There is no problem with Fannie and Freddie debt. You are pretty much at the level of guarantee by the US government," said Ogawa.
SHARP FALLS
Shares of MUFG, Japan's biggest lender, slid 5.0 percent late in the Tokyo session. Second-ranked Mizuho Financial dropped 4.7 percent while Sumitomo Mitsui gave up 5.8 percent.
In Taiwan, Cathay Financial shares plunged 6.7 percent after a government agency pegged Taiwan's exposure to Fannie and Freddie at more than T$600.0 billion ($20 billion).
In Hong Kong, China top lender ICBC fell the most in more than month, giving up 4.9 percent while China Construction Bank slumped 4.5 percent. China's biggest insurer China Life tumbled 5.1 percent and smaller rival Ping An Insurance dropped 6.8 percent.
Chinese banking stocks were hammered last year after they announced multi-billion dollar exposures to the troubled US subprime market.
"Shame on institutional investors who cannot differentiate between bonds and equity," said Samuel Chen, an analyst with JP Morgan.
"It is really unjustified to say that Chinese banks will be badly impacted by these latest crises. This is nothing like the subprime mortgage crisis."
US agency debt and agency-issued mortgage bonds held by foreign central banks -- many of which are located in Asia -- swelled by $9.0 billion in the last week, totaling a record $978.98 billion, up 18.0 percent so far this year, according to the Federal Reserve.
In Australia, investors have been racked by financial sector woes, particularly after investment firm Babcock & Brown Ltd. fell 24.0 percent this year on fears about how it finances its debt load. Still, the biggest risk for banks in the country does not have to do with exposure to toxic assets, analysts said.
($1= T$30.40)
