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Hong Kong stocks tumbled on Friday but the mid-session panic-selling triggered by the Brexit vote also attracted bargain hunting, which in the afternoon helped the market recover much of its losses in heavy trading.
At the close, the benchmark Hang Seng index was down 2.9 per cent, to 20,259.13, while the China Enterprises Index also had lost 2.9 per cent, to 8,530.10 points.
At one point, both indexes had fallen more 5 per cent.
For the week, the HSI rose 0.4 per cent, while HSCE was up 0.5 per cent.
Alex Wong, Hong Kong-based director at Ample Finance Group, said the market overreacted initially, but them gained some compusure.
“After over-reaction, investors realised that Brexit won’t have an immediate huge impact … and won’t suddenly cause a financial crisis,” he said, adding that next investors need to watch reactions in the United States.
Shares fell across the board in Hong Kong, led by financial and energy stocks.
HSBC, at one point down 12.4 per cent, ended the day off 6.6 per cent.
“The effect of this exit is pretty much still a question mark,” said Alex Tiu of AB Capital Securities in Manila, adding investors would be on a wait-and-watch mode.
Manny Cruz of Asiasec Equities said: “This is going to be an isolated case.”. The Brexit effects will not be long term, unless other members of the bloc decide to leave the EU, he said.
Singapore ended down 2.1 per cent, its lowest closesince May 13, as banking stocks took a hit. The index lost 1 per cent on the week.
DBS Group Ltd fell 2.7 per cent, while United Overseas Bank shed 2.3 per cent.
The Philippines finished down nearly 2 per cent after hitting a 13-month high in early trade.
In a reaction to the Brexit vote, the country’s central bank said more volatility can be expected in domestic markets in the near term, but it was ready to provide liquidity as needed.
Vietnam also closed nearly 2 per cent lower, with trading volumes on the Ho Chi Minh Stock Exchange surging to its highest since June 2014 at 270 million shares.
Jakarta closed down nearly 1 per cent, led byconsumer cyclicals.
“The current reaction of the market is flight to safety,” said Taye Shim, a strategist with Daewoo Securities in Indonesia. “The long-term impact would depend on how the value of the dollar would unfold.”
The Brexit impact would be much lesser for South East Asian regions, particularly Indonesia, which has low trade ties with Europe, Shim said.
Fitch Ratings: “The “Leave” result in the UK referendum on membership of the European Union is credit negative for most sectors in the UK, due to weaker medium-term growth and investment prospects and uncertainty about future trade arrangements, Fitch Ratings says.
“Brexit will be moderately credit negative for the UK sovereign and as we have previously stated we will review the sovereign rating shortly. Any negative sovereign rating action would affect the relatively small number of sovereign-linked or capped ratings in infrastructure, public finance and structured finance and government-guaranteed bank debt. But overall we expect near-term rating actions for other sectors to be limited.
“In the medium to long term any broader rating actions are likely to depend on factors such as the size and duration of the impact on GDP, the extent of sterling depreciation and their subsequent effect on inflation, asset prices, unemployment and interest rates.
“Failure to agree favourable trade arrangements would also be a significant negative for some sectors. The UK’s status as a major international banking hub could be damaged as some business lines shift to the EU. Higher import costs and pressure on exports due to the potential imposition of tariffs would be broadly negative for corporates. The extent to which the UK would be able to limit net inward migration could be significant for some asset classes.
Ana Thaker, market economist at PhillipCapital UK: “A Brexit has prevailed and markets have reacted. Sterling has tumbled to a three decade low, safe haven assets are set to flourish and volatility ensues. The move is momentous for markets and heralds in a period of volatility for the UK and beyond as markets digest what this could mean for the future of the UK. The Japanese Yen dropped beneath the 100 level this morning as markets look to the safe haven currencies and assets for stability to weather out the storm; UK gilt markets saw yields plummet 25% on the open as investors looking for UK exposure in safe haven assets.
“Markets are unlikely to know what to do until there is more clarity from the government, the Bank of England offered some soothing words as the pound pares some initial losses to the dollar this morning although it remains unclear what path the currency will follow throughout the day. Equities have opened significantly down with major European markets gapping down as futures markets stumbled over night as ‘Leave’ support prevailed. However, a saving grace for markets is that liquidity remains steady with some widening in spreads, particularly GBP crosses.
The prime minister David Cameron’s announcement that a new leadership will be sought for the Conservative party over the next three months and Sterling appears to have lifted on that sentiment.
The pound collapsed to a 31-year low and there was pandemonium on currency, equity and oil markets Friday as Britain voted to leave the European Union, fuelling a wave of global uncertainty.
Sterling crashed 10 per cent to US$1.3229 at one point, its weakest level since 1985, while the greenback itself slumped below ¥100 for the first time in two and a half years as traders fled to safety.
In the weeks leading up to Thursday’s historic vote, there had been widespread warnings that a “Brexit” would cause a rout across global markets that would wipe trillions off valuations, just months after a painful China-fuelled sell-off.
The doomsday scenario appeared to be playing out as markets suffered one of their worst days since the 2008 financial crisis after final results confirmed one of the EU’s big three economies would leave the bloc after four decades.
Fears are also growing that other EU members will push for referendums, posing the biggest threat to the future of grouping since its inception almost 60 years ago.
The pound had earlier topped $1.50 following predictions the “remain” group would win, but as the Brexit camp posted early victories around the country, traders stampeded to put in sell orders. In Asian afternoon trade it was at $1.36.
“Leave’s victory has delivered one of the biggest market shocks of all time,” said Joe Rundle, the head of trading at ETX Capital. “The reverberations of the vote will be felt around the world.
“The extent of the damage on asset prices is hard to gauge but it’s likely to be bigger than anything since Lehmans at the very least,” he added, referring to the Wall Street bank whose collapsed precipitated the global financial crisis.
The dollar slumped briefly to ¥99.02, the first time it has gone below 100 yen since November 2013, before edging back up above ¥102. The Japanese unit is considered a safe bet in times of uncertainty and turmoil.
A flight to safety also saw higher-yielding and emerging market currencies slump, with the Australian dollar down 3.4 per cent, South Korea’s won diving 2.4 per cent and the Indonesian rupiah shedding 1.7 per cent.
Malaysia’s ringgit was down 2.7 per cent, one of its worst days since 1998.
There were also heavy losses for India’s rupee, the Canadian dollar and the Singapore dollar.
Gold, another safe investment asset, surged 6 per cent to sit at a two-year high.
As the shock results rolled in, equity markets went into meltdown, wiping hundreds of billions of dollars off shares.
Tokyo plunged nearly 8 per cent, Sydney shed 3.2 per cent and Seoul was 3.1 per cent off. Mumbai lost 3.8 per cent and Shanghai sank 1.3 per cent, while Taipei, Wellington, Manila and Jakarta all saw sharp losses.
Hong Kong tumbled 4.4 per cent – having lost more than 5 per cent at one point – in the afternoon with British banking giants HSBC and Standard Chartered both losing about 9 per cent. In Pakistan, which relies on exports the Britain, the stock exchanged dived more than 3 per cent.
In early European trade London dived 8 per cent, with banking shares losing 30 per cent. And the yields on German bonds, considered ultra-safe, turned into negative territory, while British bond yields also tumbled.
“It’s scary, and I’ve never seen anything like it,” said James Butterfill, the head of research and investments at ETF Securities, in London. “A lot of people were caught out, and many investors will lose a lot of money,” he said.
Before the result was called, in the early hours in Britain Nigel Farage, leader of the anti-Europe UK Independence Party, declared victory, saying it was the country’s “independence day”.
The prospect of a severe hit to the global economy also hammered oil prices, with both main contracts slumping more than six percent.
“We are seeing oil swept up in the general market nervousness to the vote,” said Ric Spooner, a chief analyst at CMC Markets in Sydney.