HONG KONG: Asian markets mostly fell on Tuesday as a week-long rally finally came to an end with traders cashing in profits while keeping a nervous eye on a brewing crisis in Italy’s banking industry.
Shares worldwide have pushed higher since last week after a string of major central banks promised they would shore up financial markets to protect them against any negative effects from Britain’s decision to leave the European Union.
There were also hopes one of the EU’s biggest economies breaking away might not be as painful for global markets as initially assumed.
However, analysts said that with so many uncertainties surrounding the future of the country as well as ongoing weaknesses around the world, the rally had run out of steam.
“The market’s love affair with yield and all-things-not-Europe remains supportive,” said David Croy, a senior rates strategist in Wellington at ANZ Bank New Zealand.
“But it doesn’t alter the fact that caution on behalf of central banks, the forthcoming Brexit negotiations with the EU and the wave of elections in Europe next year have raised political risk in Europe.”
Tokyo finished 0.7 percent lower, while Seoul dipped 0.3 percent and Hong Kong fell 1.5 percent, although Shanghai rose 0.6 percent.
Sydney sank one percent with Australia looking set for a hung parliament after weekend elections threw up no clear winner. Standard & Poor’s has warned the country’s top-notch AAA rating could be in danger if whoever wins office cannot improve budget balances.
The pound was also back under pressure, buying $1.3159 and heading back toward the 31-year lows touched last week.
Italian bank woes
Tuesday’s sell-off follows losses in European markets, where financial companies were hurt by a warning from the European Central Bank that Italy’s number-three lender Banca Monte dei Paschi di Siena, the world’s oldest bank, had dangerously high levels of bad debt.
The Italian banking system is emerging as a big worry for investors, compounding problems after Britain’s decision to leave the EU, with stress test results on the continent’s lenders due on July 29. Italy’s are expected to show capital shortfalls.
“We have an amalgamation of small reasons to fall piling up,” said Takuya Takahashi, a Tokyo-based senior strategist at Daiwa Securities Group.
“There is probably some selling of banks’ shares that’s related to the Italian banks’ public cash injection issues.”
US markets were closed Monday for the Independence Day holiday.
Oil prices also retreated in Asia owing to a pick-up in output in Nigeria, Africa’s biggest producer, as installations hit by rebels earlier in the year were repaired and brought back online.
Brent was down 1.7 percent at $49.27 while West Texas Intermediate shed 2.1 percent to $47.97.
In early European trade, London rose 0.2 percent, Frankfurt dropped 0.6 percent and Paris slipped 0.7 percent.