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Asia markets stumble as Deutsche Bank concerns pressure banking stocks around region

Asia markets stumbled on Friday, the final trading day of the quarter, after concerns over Deutsche Bank undermined investor sentiment.

"A combination of financial sector risk in Europe, geopolitical concerns and Federal Reserve Board policy debate have injected a degree of apprehension into markets," said Stephen Innes, a senior trader at OANDA.

Meanwhile, trading in Kuala Lumpur was temporarily halted, after the stock exchange's building management received a bomb threat at 12:01 p.m. HK/SIN time. Trading was resumed in the afternoon at 2.30 p.m., and by 3:41 p.m., the KLCI was down 0.63 percent.

In Australia, the ASX 200 ended down 35.33 points, or 0.65 percent, at 5,435.92, with most sectors finishing lower. The heavily-weighted financial sector slipped 1.04 percent as major Australian banks sold off, likely due to concerns over the impact of the German lender on the global banking sector.

Japan's Nikkei 225 finished down 243.87 points, or 1.46 percent, at 16,449.84, while the Topix index fell 20.47 points, or 1.52 percent, to 1,322.78.

Across the Korean Strait, the Kospi was lower by 25.09 points, or 1.21 percent, at 2,043.63.

In Hong Kong, the Hang Seng index fell 1.82 percent by afternoon trade. Mainland Chinese shares bucked the generally downward trend across the region to close higher; the Shanghai composite added 7 points, or 0.23 percent, to 3,005.50, while the Shenzhen composite gained 9.68 points, or 0.49 percent, to 1,995. 60.

Major indexes in Thailand, Singapore and the Philippines also traded lower.

Indian shares were slightly lower, with the Nifty 50 index down 0.03 percent, after falling 1.76 percent on Thursday. The Sensex, which dropped 1.64 percent in the previous session, traded down 0.18 percent on Friday afternoon.

Sentiment in South Asia's largest country took a dent on Thursday, when India announced its army conducted "surgical strikes" against terrorists along the Line of Control, which runs through the disputed territory of Kashmir. Commentators, however, pointed out on Friday that long-term sentiment would unlikely be dented by the action unless the tensions with Pakistan escalated further.

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NIKKEI
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HSI
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ASX 200
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SHANGHAI
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KOSPI
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CNBC 100
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The moves in Asia followed a lower finish stateside. Sentiment in the U.S. took a hit following a Bloomberg News report that about 10 hedge funds had cut their exposure to Deutsche Bank over concerns the German bank would be crippled by a potential $14 billion settlement with the U.S. Department of Justice (DOJ) over alleged mortgage derivatives mis-selling.

The Bloomberg report sent Deutsche Bank's U.S.-listed shares down 6.67 percent at the close; earlier it dropped as much as 9.02 percent to $11.19, hitting an all-time intraday low.

The bank later told CNBC that while it had seen outflows from hedge fund clients, the prime brokerage business was "still very profitable" for the company.

Stuart Graham of Autonomous Research said in a note on Friday that while Deutsche Bank had many problems, liquidity was not one of them, as was implied by the Bloomberg report.

"At the second quarter stage, Deutsche had a liquidity reserve of 223 billion euros and a liquidity coverage ratio of 124 percent," he wrote. "We think [the bank] has a business model viability issue, but it does not have a near term funding problem."

Graham added, "Perversely, a liquidity panic could even strengthen its bargaining hand with the DOJ. Does the DOJ want to run the risk of being branded by European leaders as responsible for inadvertently bringing down the fourth most systemic bank in the world? Logically not, in our view."

Banking shares in Asia were lower, likely due to growing concerns over the German lender's fate.

In Australia, the so-called Big Four banks fell, with ANZ down 0.68 percent, Commonwealth Bank of Australia off 1.50 percent, Westpac shares declined 1.37 percent and the National Australia Bank was lower by 0.96 percent.

Hong Kong-listed shares of Standard Chartered were down 2.20 percent, while HSBC shares fell 1.63 percent in afternoon trade.

Japanese banking stocks slid, with Mitsubishi UFJ down 2.11 percent, SMFG lower by 1.52 percent and Mizuho down 2.2 percent.

The decline in Japanese banks was also likely influenced by concerns that the Bank of Japan would further cut deposit rates into negative territory to achieve their inflation target in light of Friday's weak inflation data. Negative interest rates adversely affect banks' profit margins.

Before markets opened, government data showed Japan's core consumer price index, which excludes fresh food prices, fell 0.5 percent on-year, slightly more than the 0.4 percent decline forecast by a Reuters poll of economists. The so-called core-core price index, which excludes fresh food and energy prices, was up 0.2 percent on-year.

"Today's CPI numbers imply that we're still on the track for declining trend of inflation. So it's quite difficult to achieve the 2 percent [inflation] target, even under the new framework introduced last week by the Bank of Japan," Takashi Miwa, chief economist for Japan at Nomura, told CNBC's "Squawk Box."

Teradat Santivivut | Getty Images

In the currency market, the dollar index, which measures the dollar against a basket of currencies, traded at 95.552, a touch higher than where it traded on Thursday afternoon Asia time.

The Australian dollar, which climbed as high as $0.7710 in the previous session, retreated back to the $0.76 handle; as of 2:51 p.m. HK/SIN, the Aussie traded at $0.7608.

The yen traded at 100.88 against the dollar, a touch lower than an earlier session high of 100.73 and easing from its last close at 101.01.

The relative weakness saw Japanese export stocks pare some of their losses, but they were still firmly negative. Toyota shares closed down 2.02 percent, Nissan was down 2.07 percent and Sony shares fell 2.66 percent.

The Dow Jones industrial average fell 195.79 points, or 1.07 percent, to close at 18,143.45. The S&P 500 index dropped 20.24 points, or 0.93 percent, to end at 2,151.13, while the Nasdaq fell 49.39 points, or 0.93 percent, to 5,269.15.

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