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How Silicon Valley Bank (SVB) crisis may impact other assets — explained


SVB collapse: After the Silicon Valley Bank (SVB) crisis, global equity markets and US dollar are under stress. In last three sessions, US dollar rate has retraced from three month highs as Dollar Index has slipped from around 106 levels to around 103 levels while key benchmark indices in Wall Street lost up to 2 per cent on Friday session. However, gold rates today climbed to the tune of $1,880 per ounce levels, logging around $65 per ounce spike since Thursday lows of around $1,815 levels. After failing to sustain above 4 per cent yield, US bond yield has once again started to appreciate.

According to investment experts, this SVB collapse followed by Signature Bank closure, bond yield, especially in treasuries are going to hit badly. However, this is restricted to US bond market only, for Indian treasuries, which is regulated by Reserve Bank of India, this crisis won’t have any impact. For, mutual fund investors, those Indians investing in international and international hybrid funds will be affected by the recent SVB and Signature Bank collapse.

Likewise, in forex market, those who have position in dollar may have to face the beating as US dollar has retraced from 3-month highs in last three days by a larger extent. Dollar Index is current quoting 103.523, which was quoting close to 106 levels on Thursday. but, the biggest hit of this banking crisis in the US would be IPO and US equity market. They said that banks that have reported collapse in last three days were major lenders for the US-based startups. So, after the failure of these banks, IPO market is expected to nosedive in near term whereas equity market would be under enormous stress in the US.

Hit on US-IPO market

On how this SVB crisis would impact equity market across globe, Kartik Jhaveri, Director — Wealth at Transcend Consultants said, “SVB and Signature Bank used to led startups and after the collapse of SVB and Signature Bank, cash flow for startups will remain challenged in the US for near term. This will have bad impact on US IPO market as startups planning to go for listing may postpone their public issue till the actual picture arrives.”

SVB crisis impact on mutual funds

Asked about SVB crisis impact on the mutual fund market, Kartik Jhaveri said, “Debt funds won’t have much impact, neither in the US nor in India. However, for Indian mutual fund investors who have exposure in international mutual funds and international hybrid mutual funds, this news is not a good news. For the mutual fund investors in US, their equity mutual fund return for short term would be impacted but for medium to long term investors, it is wait and watch situation.”

Impact on US dollar rates

“The SVB collapse has out uncertainty about the banking system in the US. Hence, both US economy and the US currency is expected to face investors’ ire in near term. So, US dollar rates are expected to remain under pressure till some concrete road map is announced from the US administration,” said Anuj Gupta, Vice President — Research at IIFL Securities.

Impact on bond market

On how bond market investors would be affected by this banking crisis, Manikaran Singhal, Founder at goodmoneying.com said, “Indian bond investors need not to worry about this banking crisis in the US. But, for the US bond investors, those who deal in treasuries will be negatively impacted by this crisis. So, those who deal in the US treasuries, are advised to take a pause for near one week and assess the US bond market on how this ban king crisis pangs out in next one week.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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