HONG KONG: The pound slumped to a fresh 31-year low against the dollar Wednesday while Asian equity markets tumbled as the negative effects of the Brexit vote sent traders fleeing to safety.
With last week’s global rally — inspired by promises of central bank stimulus after the poll — consigned to history, high-risk assets such as emerging currencies and oil have also been sent tumbling as fears begin to kick in.
The pound sank to $1.2829, its lowest level since mid-1985, while Japan’s Nikkei stock index dived three percent and Hong Kong and Seoul each shed more than two percent. Sydney slipped 1.4 percent.
“Investor sentiment soured over the July 4 long weekend,” said Stephen Innes, senior trader at OANDA Asia Pacific, in a note.
“Just when you thought it was ‘safe to go back in the water’, the pound got pounded as speculation around Brexit forms into something more concrete.”
Hefty selling began in Europe on Tuesday afternoon when the head of the Bank of England said there was “evidence that some risks have begun to crystallise” following the shock June 23 vote for Britain to leave the European Union.
A biannual report from the bank’s Financial Policy Committee said the outlook for the country’s financial stability was “challenging”.
The BoE also relaxed commercial banks’ capital requirements to boost lending, which analysts said indicated it was prepared to further loosen monetary policy to support the British economy.
The measure provided support to London stocks, but was unable to prevent a sell-off across the rest of Europe and New York.
Adding to the sense of panic was news that three commercial property funds worth billions of dollars had suspended trade and blocked client redemptions.
The moves come as fears grow that the vote will lead companies — particularly banks in London — to shift operations from Britain, fuelling a surge in selling and a slump in prices.
Europe’s financial sector is already under pressure after the European Central Bank warned Italy’s number-three lender Banca Monte dei Paschi di Siena, the world’s oldest bank, it had dangerously high levels of bad debt.
The flight to safety saw the dollar fall towards 100 yen. Emerging market currencies floundered with South Korea’s won losing one percent against the dollar, while the Indonesian rupiah shed 0.4 percent and the Malaysian ringgit 0.9 percent. Australia’s dollar also sank one percent.
On oil markets Brent and West Texas Intermediate each fell 0.7 percent while gold, which is a go-to commodity in times of uncertainty, climbed 1.4 percent to $1,368.
“The lack of confidence and growth will weigh on sentiment,” Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, told Bloomberg News.
“For anyone that’s reaped the benefits of the equity bull market it’s definitely time to consider taking some profits, if you haven’t already, and move to a more defensive stance.”
Tokyo – Nikkei 225: DOWN 3.0 percent at 15,206.30 (break)
Hong Kong – Hang Seng: DOWN 1.9 percent at 20,363.90
Shanghai – Composite: DOWN 0.3 percent at 2,996.02
Pound/dollar: DOWN at $1.2829 from $1.3028 Tuesday
Euro/dollar: DOWN at $1.1044 from $1.1075
Dollar/yen: DOWN at 100.74 yen from 101.75 yen
New York – DOW: DOWN 0.6 percent at 17,840.62 (close)
London – FTSE 100: UP 0.4 percent at 6,545.37 (close)