Asia stocks reacted badly on Monday to plans for an unprecedented levy on private bank deposits in Cyprus in exchange for a financial bailout — with U.S. stock-index futures and the euro also sharply lower.
Japan’s Nikkei Stock Average tumbled to end 2.7% lower, while South Korea’s Kospi lost 0.8%, and Australia’s S&P/ASX 200 index closed 2.1% lower.
In Chinese trading, Hong Kong’s Hang Seng Index was down 2.1% in the afternoon session, while the Shanghai Composite Index sat 1.1% lower.
U.S. index futures also took a hit, as the Dow Jones Industrial Average contract traded down 159 points, or 1.1%, and Nasdaq futures fell 41 points, or 1.5%, while those for the S&P 500 lost 23.7 points, also a 1.5% loss.
In the currency markets, the euro fell sharply to $1.2894 in Asian trading hours Monday, down from $1.3076 in late North American trading Friday.
The losses for Asian stocks and other securities came after Cyprus announced plans for a one-off levy on bank deposits in exchange for equity in the banks.
The measure was part of a deal that would have international creditors provide 10 billion euros ($12.9 billion) to shore up the island nation’s finances.
The move would mark the first time in the euro-zone debt crisis that private citizens’ bank deposits would be tapped, and Morgan Stanley said the introduction of the levy “seems to have broken another taboo.”
The strategists went on to question whether “senior bank debt is the next taboo to be broken, given the linkage with deposits.”
Morgan Stanley recommended selling high-beta banks and said that, broadly, “investors should expect material market weakness in the near term.” (Read more analyst reaction to the Cyprus deposit levy.)
In Hong Kong, the Hang Seng Index’s top-weighted component — London-based HSBC Holdings PLC — fell 2.6%, with the Financial Times also reporting that the bank is planning “thousands more job cuts.”
Other Hong Kong-listed financial shares also showed weakness, with Agricultural Bank of China Ltd. down 3.2%, China Merchants Bank Co. off 2% and broker Haitong Securities Co. losing 2.6%.
The volatile property sector also fell n Hong Kong, with New World Development Co. losing 3.5%, and China Overseas Land & Investment Ltd. down 2.6%.
Property shares were also reacting to fresh data, with TD Securities strategist Annette Beacher saying that “while all eyes are on the fallout of the proposed Cyprus bailout, the 70 city property prices for China were released for February, and it was a very strong report.”
“An assortment of property price and lending controls has been announced in recent weeks, and today’s strong report confirms why there has been some urgency in cooling this sector,” she said.
With the Cyprus news weighing on global markets, the Japanese yen regained some safe-haven interest, sending the U.S. dollar back down to ¥94.40 from ¥95.96 late Friday.
Amid a rising yen and worries of another flare-up in the European debt crisis, Sony Corp. fell 6.8%, Tokyo Electron Ltd. dropped 5.3%, Toyota Motor Corp. lost 3.4%, and Mitsubishi Motors Corp. retreated 4.6%.
However, Panasonic Corp. managed to rise 0.6% after a Nikkei news report said the company was considering closing its plasma-television operations.
Gold futures rose Monday in Asia, but copper fell sharply along with some other base metals, helping to make Australian mining stocks among the worst performers in Sydney on Monday.
Among the majors, Rio Tinto Ltd dropped 2.9%, while BHP Billition Ltd. fell 2.4%.