Asian Stocks Dragged Down as Deutsche Bank Raises Systemic Risk

(Bloomberg) -- Asian stocks fell the most in almost three weeks as mounting concern over Deutsche Bank AG’s ability to withstand pending legal penalties finances spurred a selloff in global financial shares.

The MSCI Asia Pacific Index dropped 1.1 percent to 139.78 as of 4:03 p.m. in Hong Kong, while a measure of regional banking stocks lost 1.6 percent as AIA Group Ltd. and Commonwealth Bank of Australia paced declines. Chinese shares fell the most in Asia, with Hong Kong’s Hang Seng Index closing down 1.9 percent to pare its best quarterly performance in seven years. Japan’s Topix gauge dropped 1.5 percent.

The rally that has seen Asian stocks poised for their best quarter since 2012 has hit a bump after issues surfaced at Deutsche Bank and U.S. lender Wells Fargo & Co., raising concern over the systemic risk these banks pose to the global financial system. Shares of Deutsche Bank in the U.S. slumped to a record low after Bloomberg News reported that some hedge funds were moving to reduce their financial exposure to the bank.

“Deutsche certainly weighs on sentiment, and the declines are concerning,” said James Woods, a strategist at Rivkin Securities in Sydney, said by phone. “Being named the number one bank for global systemic risk, it’s entwined with everyone.”

The International Monetary Fund said in June that the bank may be the biggest contributor to systemic risk among the largest financial companies.

Oil Gains

Asian stocks got a reprieve on Thursday as energy shares rallied after the Organization of Petroleum Exporting Countries agreed to cut production for the first time in eight years. West Texas Intermediate crude futures rose 7.1 percent over Wednesday and Thursday before declining 1.6 percent on Friday.

South Korea’s Kospi Index fell 1.2 percent, Taiwan’s Taiex Index retreated 1.1 percent and Australia’s S&P/ASX 200 Index lost 0.7 percent. Singapore’s Straits Times Index dropped 1 percent and the Philippine Stock Exchange Index decreased 1.1 percent, while New Zealand’s S&P/NZX 50 Index advanced 0.2 percent.

The S&P BSE Sensex Index swung between gains and losses after falling the most in three months Thursday as an Indian attack on terrorist camps in Pakistan escalated tensions between the nuclear-armed neighbors. Malaysia’s FTSE Bursa Malaysia KLCI Index declined 0.8 percent after the stock-exchange operator received a bomb threat.

The Hang Seng Index has rallied 12 percent since the end of June, the most in Asia, as inflows swelled via an exchange link with Shanghai and traders scaled back bets for higher U.S. borrowing costs. The Shanghai Composite Index closed 0.2 percent higher on the last trading day before a week-long holiday, while the connect is closed until Oct. 11.

Futures on the S&P 500 Index dropped 0.2 percent. The U.S. equity benchmark index retreated 0.9 percent Thursday as financial shares tumbled 1.5 percent.

To contact the reporter on this story: Choong En Han in Kuala Lumpur at echoong6@bloomberg.net. To contact the editors responsible for this story: Jeff Sutherland at jsutherlan13@bloomberg.net, Andrew Janes, Tom Redmond

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