Two US banks "bomb"!??

$SentinelOne(S.US)hanghai Composite Index sh000001$ The A-share market in the past two days has been nothing short of disastrous.

On Thursday, the market trend was like tumbling and scrambling, and by Friday, it was like a complete collapse, with investors fleeing in panic.

If we have to find a reason for this decline, the biggest change would be the trouble at two regional banks in the U.S. To be precise, calling it a "bomb" isn’t quite right—these banks were actually scammed.

First, a regional bank called Zions Bancorp suddenly issued an announcement. It stated that its subsidiary, California Bank & Trust, had lent $60 million to several investment funds. When borrowing the money, these funds made grand claims, saying they would use it to acquire commercial mortgage loans on the verge of default. Simply put, it’s like the bank lending depositors' money to small loan companies, which then buy non-performing assets to share the profits. At first glance, this deal seemed decent.

But here’s the problem: the properties and notes that were supposed to serve as collateral had already been secretly transferred elsewhere. The bank lent the money but ended up with no collateral—like throwing meat buns at a dog, never to return. So, $50 million of the $60 million loan was directly written off as bad debt, leaving the bank to swallow the loss.

Shortly after, another bank called Western Alliance was exposed for lending out nearly $100 million, which also seemed unlikely to be recovered.

As soon as this news broke, some linked it to the events in Silicon Valley in 2024. Others with longer memories even drew parallels to the financial crisis triggered by the collapse of Lehman Brothers in 2008.

Now the question arises: Is it really that pessimistic? The answer is no. The root of this problem is distinctly different from past crises—it’s a classic liquidity issue.

For these two banks, the problem lies in their loans—they were scammed by clients, and the money can’t be recovered. This is a loan quality issue. Even if losses occur, they won’t be severe enough to cripple the banks or prevent them from repaying depositors, thanks to the Basel Accords, which impose strict requirements on asset-liability ratios.

Therefore, I judge that systemic financial risks are unlikely to emerge now. As long as there’s a massive deposit outflow or a run on the banks, the situation won’t become systemic or contagious. Those worried about deteriorating fundamentals can rest easy.

So why is the A-share market still plummeting? The biggest issue lies in sentiment. The U.S.-China trade friction continues, and before meeting, both sides are constantly building leverage to gain a stronger negotiating position. This kind of uncertainty is what investors fear most. The slightest negative news is blown out of proportion and treated as a major bearish signal.

So the sentiment transmission path from the U.S. to us goes like this: News about U.S. regional banks spreads, raising concerns about a credit crunch and reduced liquidity in the market. Fears over liquidity prompt investors to dump equity assets, exacerbating volatility in U.S. stocks. After the sharp swings in U.S. stocks, the panic spreads to the more sensitive Asian markets and is further amplified. In the end, we see almost the entire Asia-Pacific market, including A-shares, falling across the board.

From this perspective, the core contradiction in the current market isn’t deteriorating fundamentals—it’s just that everyone’s emotions are too fragile and need an outlet. When everyone rushes for the exit, it only leads to a stampede, and reasoning is useless at this point.

The key question is: Are there still investable opportunities now? In my view, technology remains the core theme. Just because the tech sector is adjusting now doesn’t mean it won’t recover later.

For short-term allocation, choosing dividend stocks for hedging based on your risk appetite is also a good approach. But if you want to add some growth momentum on top of dividends, the free cash flow strategy is undoubtedly a better choice.

For the A-share market, everyone should now allocate based on their own risk preferences. If your risk appetite is low, opt for safer investments like treasury bonds or dividend products, and reduce exposure to volatile tech stocks. Keep some cash on hand and wait for clearer market signals before acting. Of course, dividend products may not rise much during rebounds, but they offer stability for now.

If your risk appetite is higher, take advantage of the market decline to buy more tech stocks and lower your cost basis when prices rebound. After all, tech will still be the main theme post-adjustment. But be sure to manage your positions carefully—don’t get caught trying to time the bottom and end up stuck halfway.

If you’re more professional, you can also hedge your positions with options or short futures.

Finally, here’s the conclusion! A market rebound on Monday is still very possible. But the real signal for the end of the risk-off cycle is more likely to emerge closer to November 1. This pullback is just a "retreat to pick up passengers," not the end of the bull market. So, relax and enjoy the weekend.