Risk assets fell across the board on Monday as Asian markets saw a massive sell-off after a weekend decision by the euro zone to force depositors in Cyprus to contribute towards a bailout sparked concerns of contagion across other peripheral countries.
The Hang Seng Index and Japan's Nikkei led losses by over 2 percent, Australia's benchmark declined to a two-week low and Seoul's Kospi hit a fresh one-month low. Meanwhile, Shanghai shares traded at their weakest levels in two months and the Hong Kong market erased all its gains for 2013.
The euro zone's decision to implement a levy on bank deposits of all sizes in return for financial aid marks a radical departure from previous euro zone aid packages. "It (the levy) could be seen as akin to the Fed deciding not to stand behind Lehman Brothers in 2008," said Jason Hughes of IG Markets in a note.
The unusual bailout proposal rattled currency and commodity markets with Brent crude dropping over $1 in Asian trade, the euro tumbling to an all-time low for 2013 and the yen briefly hitting a one-week high against the U.S dollar.
Investors are concerned that taxing depositors may provoke depositors in other debt-ridden nations to shift their money to "safer" European banks. "If I'm an Italian and Spanish depositor, I'd be very, very nervous right now," said Kelvin Tay of UBS Wealth Management on CNBC's "Asia Squawk Box."