The unexpected referendum result sent shock waves through the UK parliament, leaving the two biggest political parties in turmoil. Soon after the Brexit referendum outcome, British Prime Minister David Cameron said on 24 June 2016 that he will resign as the country's prime minister. Meanwhile, over the weekend the leader of the opposition Labour Party Jeremy Corbyn sacked a key member of his cabinet seen as plotting a coup against him. That dismissal was followed by the resignations of 11 other key party members in a protest against Corbyn's leadership. More resignations followed today, 27 June 2016.
UK's finance minister, George Osborne, said in a statement today, 27 June 2016, that Britain has discussed co-ordinated response with the finance ministers and central bank governors of the G7 after the outcome of the referendum. He further said that he has been in contact with his fellow European finance ministers, central bank governors, the managing director of the IMF, the US Treasury Secretary and the Speaker of Congress, and the CEOs of some of Britain's major financial institutions so as to collectively keep a close eye on the developments. He said that only the UK can trigger Article 50, and that in his judgement the country should only do that when there is a clear view about what new arrangement the UK is seeking with its European neighbours. Osborne said that it is inevitable that Britain's economy will have to adjust to the outcome of the Brexit referendum. It is already evident that as a result of the decision, some firms are continuing to pause their decisions to invest, or to hire people.
The Governor of UK's central bank Bank of England Mark Carney said in a statement on 24 June 2016 that there will be a period of uncertainty and adjustment after people of the UK voted for the UK to leave the European Union. It will take some time for the UK to establish new relationships with Europe and the rest of the world. Some market and economic volatility can be expected as this process unfolds. Carney said that the Bank of England stands ready to provide more than 250b billion of additional funds through its normal facilities to support the functioning of markets. The Bank of England also stands ready to provide substantial liquidity in foreign currency, if required. A few months ago, the Bank of England judged that the risks around the referendum were the most significant, near-term domestic risks to financial stability. To mitigate them, the Bank of England has put in place extensive contingency plans, Carney said.
Meanwhile, Euroskeptic parties on the rise in other member states such as Denmark, Sweden, Holland and Italy are now calling for their own referendum, which could see the European Union face more uncertainty in coming years. A statement from the European Commission after a meeting at Brussels, Belgium between Martin Schulz, President of the European Parliament, Donald Tusk, President of the European Council and Mark Rutte, Holder of the Presidency of the Council of the European Union (EU) on 24 June 2016 stated that the union of the remaining 27 member states of the EU will continue after British people voted in favour of United Kingdom leaving the EU. The EU stands ready to launch negotiations swiftly with the UK regarding the terms and conditions of UK's withdrawal from the EU. The statement further mentioned that the EU now expects the UK government to give effect to this decision of the British people as soon as possible. Any delay would unnecessarily prolong uncertainty. The EU hopes that the UK becomes a close partner of the EU in the future.
Among Asian bourses
Australia Market closes higher on resources strength
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Australian share market finished the session higher on the back of bargain hunting in recently battered stocks. But upward move was limited due to continued selloff in British and European exposed stocks. At close of trade, the benchmark S&P/ASX 200 index added 24 points, or 0.47%, to 5137.20. The broader All Ordinaries climbed up 23.40 points, or 0.45%, to 5216.20.
Shares of big miners were among the strongest performers among the blue chips, due to bottom fishing following the heavy losses suffered on Friday. BHP Billiton was the strongest stock by weight, rising 3.1% to A$18.08, while Rio Tinto rose 2.9% to A$44.07. Fortescue Metals Group was the day's best performer, up 8% to A$3.53.
Shares of banks and financial companies ended mixed. ANZ Banking Group lost 0.7% to A$23.27, National Australia Bank fell 0.4% to A$24.51, while Commonwealth Bank of Australia rose 0.3% to A$72.80 and Westpac Banking Corporation ended 0.1% higher at A$28.38. Clydesdale Bank, National Australia Bank's British spin-off, fell 9.4% to A$4.14. QBE shares also took a hit, down 6.8% to A$10.23 despite the bank assuring investors it did not "anticipate any material impact on our day to day insurance operations".
Nikkei bounces 2.39%
The Japan share market rebounded, as investors chased for bottom fishing following steep losses on Friday's after UK's voted to exit the European Union. Total 22 out of 33 TSE sectors advanced, with Pulp & Paper, Land Transportation, Pharmaceutical, Foods, and Information & Communication issues being major gainers. The 225-issue Nikkei Stock Average gained 357.19 points, or 2.39%, to 15309.21. The broader Topix index of all First Section issues on the Tokyo Stock Exchange was up 21.28 points, or 1.77%, to 1225.76.
Domestic demand-related issues enjoyed handsome gains, among them drug makers Astellas and Takeda, railway operators JR East and JR Tokai, and food makers Meiji Holdings and Morinaga Milk Industry. General contractors Taisei, Kajima and Shimizu were buoyant on expectations that the government will compile a large-scale supplementary budget to cushion expected Brexit impacts following the national referendum.
By contrast, automakers Toyota, Nissan and Mazda continued to face selling on concerns over the yen's further rise. Sharp plummeted 14.4% as the struggling electronics maker is set to be demoted to the TSE's second section from the first section on Aug. 1. Mazda Motor Corp. plunged 9.7% after Nomura cut its rating on the automaker, citing a slowdown in the European car market and a stronger yen.
Energy and materials stocks lead China market rally
Mainland China stock market advanced, with energy and materials companies pacing gains after policy makers said they will reduce overcapacity in the coal and steel industries. The CSI300 index of the largest listed companies in Shanghai and Shenzhen grew 1.41%, to 3120.54, while the Shanghai Composite Index rose 1.45%, to 2895.70 points.
Shares materials and resources companies rallied, led by China Shenhua Energy Co. and Angang Steel Co, after the National Development and Reform Commission said the nation will further cut capacity in the coal and steel industries. NDRC Chairman Xu Shaoshi said at the World Economic Forum in Tianjin on Sunday that China will cut coal capacity this year by about 7.5% to curb pollution and eliminate so-called zombie companies in the struggling industry. The nation will also shed 45 million tons of steel capacity by the end of 2016, he said.
Kweichow Moutai Co., the biggest maker of baijiu liquor, rose 5.1% after a brokerage forecast industry shares could climb 20%, while Wuliangye Yibin Co. gained 3.3%. Jiangsu Yanghe Brewery Joint-Stock Co. added 3.2%.
Hong Kong Stocks extend losses in wake of Brexit
The Hong Kong stock market finished down in quiet and volatile trade in the aftermath of the UK's referendum on EU membership. The benchmark Hang Seng Index fell 31.83 points, or 0.16%, to 20227.30 points. The Hang Seng China Enterprises Index, benchmark measure of performance of mainland China enterprises, added 37.11 points, or 0.44%, to 8567.21. Turnover decreased to HK$62.6 billion from HK$99.8 billion on Friday.
Stocks with UK exposures continued their fall. CKH Holdings (00001) slid 4% to HK$83.5 after Morgan Stanley trimmed its target price to HK$95 from HK$102. CKI (01038) plunged 4.9% to HK$66.5, while Power Assets (00006) fell 2.6% to HK$68.15. Credit Suisse lowered its target prices for both stocks.
HSBC (00005) fell 1.7% to HK$46.65. Standard Chartered (02888) slipped 1% to HK$57.15. Chinese banks saw support as JP Morgan said Brexit's impact on mainland lenders is limited. ICBC (01398) advanced 2.3% to HK$4.41. CCB (00939) gained 1.4% to HK$4.95.
Link REIT (00823) and Fortune REIT (00778) shot up 3.9% and 1.9% to HK$51.65 and HK$9.19 as JP Morgan expects that low US Treasury yields will stay in the short term.
Oil prices were also hurt by Brexit, falling 5% and lost the US$50/bbl level. CNOOC (00883) slipped 1.2% to HK$9.18. PetroChina (00857) declined 1.5% to HK$5.1. But Cathay Pacific (00293) slid 4% to HK$11.1, and has not benefited from the lower oil prices.
Indian indices eke out minuscule gains
Indian benchmark indices settled near the flat line, amid a divergent trend among various index constituents. The barometer index, the S&P BSE Sensex, rose 5.25 points or 0.02% to settle at 26,402.96. The Nifty 50 rose 6.10 points or 0.08% to settle at 8,094.70.
Engineering & construction major L&T moved higher after the company's announcement that its construction division has secured orders worth Rs 2416 crore across various business segments in this month so far. Tata Steel extended losses registered during the previous trading session triggered by the UK voting to leave the European Union (EU) in a referendum on 23 June 2016. Stocks of public sector oil marketing companies (PSU OMCs) edged higher on fall in global crude oil prices.
The broad market depicted strength. More than two stocks rose for each stock that fell on BSE. 1,820 shares rose and 788 shares declined. A total of 179 shares were unchanged. A number of stocks forming part of the broad based BSE Small-Cap index registered gains exceeding 3% for the trading session. Nearly 80% of the stocks forming part of the BSE Small-Cap index ended higher. The BSE Small-Cap index rose 1.52%. The BSE Mid-Cap index rose 0.80%. Both these indices outperformed the Sensex.
Meanwhile, global credit rating agency Moody's Investors Service reportedly said in a note that the Indian government's recent decision to relax foreign direct (FDI) investment rules in sectors including defence, aviation, and retail is credit positive for its Baa3 sovereign rating on India because the move demonstrates a continuation of reform momentum and paves the way for private investment and a boost in productivity. The rating agency simultaneously warned that reforms have stalled in passing a revamped goods and services tax and land acquisition rules, according to media reports. Moody's reportedly expects that political division in India will keep the reform process uneven and slow-moving. Moody's currently rates India at Baa3, the lowest investment-grade rating, with a "positive" outlook.
Elsewhere in the Asia Pacific region: New Zealand's NZX50 rose 0.3% to 6686.93. South Korea's KOSPI index rose 0.1% to 1926.85. Taiwan's Taiex index fell 0.2% to 8458.87. Malaysia's KLCI fell 0.3% to 1629.52. Indonesia's Jakarta Composite index rose 00.3% to 4836.05. Singapore's Straits Times index fell 0.2% to 2729.85.
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