HONG KONG: Asia led a bounce in world markets on Tuesday while the pound rose as traders began betting on a fresh round of stimulus to mitigate the effects of Britain’s shock decision to leave the EU.
Regional markets mostly closed higher after beginning the day deep in the red, as uncertainty over the vote—which many fear could precipitate the end of the United Kingdom and even the European Union—revived selling after Monday’s surprise rise in Asia.
A lack of haste among Britain’s leadership is adding to a sense of drift in the country, with Prime Minister David Cameron saying he will stand down in the autumn and hand responsibility for exiting the EU to his—as yet unknown—successor.
While Cameron does not want to trigger the process to remove Britain before he leaves, he is facing pressure from other EU leaders, ahead of a crucial Brussels summit Tuesday, to hurry the process up.
A slump in New York and European markets Monday as well as cuts to Britain’s credit rating by Standard & Poor’s and Fitch—making it more expensive to borrow cash in international markets—added to downward pressure.
However, speculation swirled on trading floors Tuesday that authorities would step in to prevent another market rout—just months after a China-fuelled sell-off carved trillions off valuations.
“We are probably going to have looser policy settings than before [last Thursday’s]vote,” Tim Schroeders, a Melbourne-based portfolio manager at Pengana Capital Ltd., told Bloomberg News.
“You’d have to suspect that the bias is to the downside for global growth and as a result that stimulus remains in light of increased uncertainty.”
Reports said Japan’s prime minister had been urged to unveil economy-supporting measures, while South Korea’s central bank unveiled a $17 billion injection and lowered its growth outlook for the country.
Global markets suffered a mauling on Friday after the British voted to leave the EU after four decades—upending the European political and economic order—and analysts warned of a possible global recession.
Asia damage ‘limited’
Key indexes in New York and Europe have seen huge withdrawals since Friday—$974.2 billion was scythed off Wall Street’s S&P 500 in two days, the third worst back-to-back stretch in history, according to S&P Dow Jones Indices.
But in Asia Tuesday Tokyo ended up 0.1 percent, having fallen 2 percent in the morning, while Seoul also reversed to finish 0.5 percent higher.
Shanghai recovered to end 0.6 percent higher, while there were healthy gains in Singapore, Wellington, Taipei, Jakarta and Bangkok.
Hong Kong was 0.6 percent down in the afternoon while Sydney gave up 0.7 percent, although both were improvements on early trade.
In early European trade London jumped 2.0 percent, Paris rallied 2.3 percent and Frankfurt climbed 2.1 percent.
S&P Global Ratings credit analyst Terry Chan wrote that he saw limited long-term damage to Asia.
“Brexit’s market impact is likely to be significant in the near term, particularly in terms of stock market and currency volatility,” he said.
“The medium-term impact on Asia-Pacific markets, however, is likely to be limited as investors make decisions based more on economic and financial fundamentals rather than just sentiment.
“If market volatility were to spike and prolong, we believe Asia-Pacific regulators are likely to take action, including extending short-term liquidity.”
The pound rose to $1.3310 in Asia, from $1.3228 in New York and much stronger than the $1.3121 hit earlier Monday, which was its lowest since September 1985.
But Japanese banking giant Nomura warned it could fall to $1.25 owing to worries about Britain’s economic future.
Oil prices climbed on bargain-buying, having lost around 10 percent since hitting 2016 highs above $52 earlier in the month.
West Texas Intermediate rallied 1.3 percent at $46.92 and Brent also added 1.3 percent to $47.77.