Hopes for U.K. to Remain in EU Lift Asian Markets

20 Jun 2016

Hopes for U.K. to Remain in EU Lift Asian Markets

Gains come as U.K. opinion polls suggest a swing in favor of the country remaining in the European Union

A sharp rebound in Japanese stocks helped lead most Asian markets higher Monday, as worries eased about the coming referendum in the U.K. on European Union membership.

But India’s markets were relatively muted, after news over the weekend that central bank Gov. Raghuram Rajan would step down when his term ends in September.

The Nikkei Stock Average finished up 2.3%, following a 6% drop last week.

The S&P BSE Sensex closed up 0.7%, erasing earlier losses as technology and auto shares gained. These sectors were up due to weakness in the rupee, which lost 0.8% against the U.S. dollar. A weaker rupee improves the profit of Indian exporters that earn most of their revenue from overseas markets.

Elsewhere, Australia’s S&P ASX 200 closed up 1.8% and Hong Kong’s Hang Seng Index added 1.7%. South Korea’s Kospi was up 1.4% and the Shanghai Composite Index recovered losses earlier to gain 0.1%.

A regional recovery came as the latest opinion polls from the U.K. suggested a late swing in favor of the country remaining in the EU. A survey published in the Mail on Sunday showed 45% backed staying in the EU, with 42% in favor of leaving.

The British pound jumped against major currencies during Asia trade Monday, hitting as high as 1.4622 to the dollar, its strongest level since June 7, according to Reuters. A weaker dollar was helping oil prices, which in turn boosted energy stocks.

Australia-listed Origin Energy Ltd. surged 9.4% while in Hong Kong, PetroChina Co. Ltd. was up 1.7%.

Yields on several benchmark Asian government bonds rose Monday, suggesting investors were no longer ducking for cover. Yields move inversely to prices.

Yields on the 10-year Japanese government bond were at minus 0.143%, compared with a record low last Thursday of minus 0.202%. In South Korea, yields on its 10-year government bond were at 1.637%, compared with last Thursday’s low of 1.581%.

“We still don’t know what is going to happen to the U.K., but since late last week, the ‘stay’ camp appears to be regaining momentum,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management. He added that in Japan, the slightly higher odds that the U.K. would remain in the European bloc triggered some short covering.

Still, investors and traders were on edge given how close Thursday’s vote looks to be. Last week, momentum appeared to be building for the campaign to leave the bloc, sending global markets sharply lower and bond prices surging.

“This is still a market that is fragile and happy to turn on a dime,” said Chris Weston, chief market strategist at brokerage IG. He said that while the odds of the U.K. leaving have fallen again, there are several more polls expected in coming days.

Signaling the shift in sentiment, traders were exiting the yen Monday, with the currency weakening by 0.5% against the dollar, to 104.63 yen to the greenback. Investors had converged on the currency last week, on the view it was a safe haven from any Brexit fallout.

In India, Mr. Rajan’s leaving weighed on the rupee—analysts credit the central bank governor with stabilizing the currency against the dollar, as well as bringing down inflation and taking steps to tackle the bad-loan mess in the Indian banking system.

Elsewhere in currencies, most in Asia were rallying against the dollar on Monday, as “Brexit” fears cooled.


Comments Comments(0)

Topclass Reporters