World markets tumble on Brexit fears

London-listed shares have fallen for the fourth straight session after two polls showed the campaign for Britain to leave the EU had widened its lead over the IN campaign.
The British (right) and European Union flags displayed at a gift shop at the European Parliament in Brussels.
The British (right) and European Union flags displayed at a gift shop at the European Parliament in Brussels.PHOTO: BLOOMBERG

LONDON • Britain's possible exit from the European Union wreaked havoc in world markets, as nervous investors rushed for safe havens.

Anxiety prevailed as stock markets across the Asia-Pacific tanked, with Tokyo's Nikkei index losing almost 5 per cent in the past week and Hong Kong's Hang Seng down more than 3 per cent in the same period. Sydney fell almost 3 per cent.

The benchmark Straits Times Index dropped 0.61 per cent yesterday, ending in the red for the fourth straight session.

Emerging-market stocks and currencies also headed for the steepest four-day declines since January, with equity gauges from Russia to South Africa to Turkey dropping at least 1 per cent as investors sold riskier assets.

The MSCI All-Country World Index fell for a fourth day in the longest slump in four months.

"It's a trifecta of uncertainty with Brexit, the FOMC (Federal Open Market Committee) meeting later this week, and the slump in liquidity typical from June to August, which would exaggerate market movements," said Mr Geoffrey Ng, a director at Fortress Capital Asset Management in Kuala Lumpur. "With markets on a yo-yo, we are taking only trades that are within a range and are short-term."

For Europe, the stress has reached levels not seen in almost a year.

European shares fell for a fifth straight session to a new three- month low, dropping over 1 per cent as commodity stocks tumbled around 2 per cent and the global market fear gauge, the VIX, spiked.

In currency markets, the British pound fell to a fresh eight-week low against the greenback to US$1.4137 and the dive for safety lifted the Swiss franc to a three-month high of 1.0833 francs to the euro. The yen, another safety play, rose to 118.90 per euro, a more-than- three-year high.

Corporate bond risk surged in Europe and issuance slowed.

Germany's 10-year government bonds, considered a benchmark of financial security, yesterday turned negative for the first time, as investors scrambled for safe-haven debt.

In late morning European trading, the Bund yielded minus 0.028 per cent, an immediate cost to anyone holding the investment.

"There's a lot of fear in the markets at the moment," said Mr Hilary Wakefield, head of portfolio management at EFG Asset Management in London.

"When you take a US$3 trillion (S$4 trillion) economy and put that into a period of negative growth, the impact on Europe is going to be quite meaningful. The US is in a substantially better shape to withstand shocks and surprises."

Investor anxiety also eclipsed the return of health for crude prices. Brent crude oil futures fell by 66 cents to US$49.69 a barrel by 10.39 GMT, dropping for a fourth day in a row, while US crude futures dropped 65 cents to US$48.23 a barrel.

A Brexit would be a breakaway of Europe's second-biggest economy at a time when central banks are running desperately low on effective ammunition to soften any further economic blows.

"The thought process is that if the UK leaves the EU, then the EU might slip back into recession," PVM Oil Associates analyst Tamas Varga said.

BLOOMBERG, REUTERS, AGENCE FRANCE-PRESSE

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A version of this article appeared in the print edition of The Straits Times on June 15, 2016, with the headline 'World markets tumble on Brexit fears'. Print Edition | Subscribe