Asian Shares Down on Renewed Brexit Fears

Market worries sent Asian equities broadly lower early Friday, as increasingly heated discussions over the U.K.'s departure from the European Union saw the pound plunging against the U.S. dollar.

The Nikkei Stock Average was down 0.2%, Australia's S&P/ASX 200 fell 0.3%, Hong Kong's Hang Seng Index was down 0.4% and Korea's Kospi slipped 0.3%. Markets in China are closed for the Golden Week holiday.

"The Brexit situation is one of the risk focuses the markets have," said Ric Spooner, chief market analyst at CMC Markets. "The question is how is it going to play out."

The pound fell as much as 6.3% against the dollar to $1.1819 in early Asian trading before recovering, according to Thomson Reuters data. The declines have since narrowed to around 1.9%.

The selloff began with comments by French President Franç ois Hollande, who said the EU should negotiate toughly with the U.K. to avoid a fallout on member states. Britain wanted to leave the bloc "but doesn't want to pay," which was "not possible," Mr. Hollande said in comments cited by Sky News.

"I initially doubted what I saw on my screen," said Kenji Yoshii, a foreign exchange strategist at Mizuho Securities in Tokyo, as the pound tumbled in early Asia trading.

The wave of selling Friday follows a rough patch for the pound. Earlier this week, Prime Minister Theresa May set a date to begin leaving the EU. So far in October, the pound was down 4.1% against the dollar.

In Hong Kong, stocks with significant exposure to the U.K. declined markedly, reacting to the pound's precipitous drop. Banking giant HSBC was off 1.0%, while Standard Chartered Bank fell 1.8%. HSBC's drop was responsible for about one-quarter of the Hang Seng Index's declines in the morning session.

Also, Cheung Kong Infrastructure, which has many utility investments in the U.K., declined 1.4%, while its parent company, conglomerate CK Hutchison, fell 0.7%.

Still, some analysts said they don't expect much impact of the pound's plunge on wider markets, at least in the short term.

"No other currency moved except sterling at that time, so I think the snowball effect to other markets like Asian equities is close to zero," said Tareck Horchani, deputy head of sales trading for Asia Pacific at Saxo Capital Markets.

Meanwhile, U.S. initial jobless claims, a proxy for layoffs, decreased by 5,000 to a seasonally adjusted 249,000 in the week ended Oct. 1, the Labor Department said Thursday. That was the smallest figure since mid-April, when claims hit an almost 43-year low.

The data supported expectations of an interest-rate increase by the Federal Reserve at its meeting in December. Rises in interest rates typically see an outflow of capital from emerging markets. The market will be closely watching nonfarm payrolls data, out Friday, for further clues as to the timeline for a rate increase.

Elsewhere, banks in Japan fell after Bank of Japan Governor Haruhiko Kuroda cautioned Thursday that European nations should react to the problems affecting their banking system in a timely manner, juxtaposing the current situation with Japan's banking crisis in the 1990s.

The central banker said the banking crisis in Japan grew more serious and extended as the government took a long time to respond, with the injection of public funds. "It is true that had adverse effect on the macro economy," Mr. Kuroda told reporters in Washington, D.C.

The Topix banking subindex snapped a four-day winning streak and was recently down 0.8%. Among individual banks, Sumitomo Mitsui Financial Group fell 1%, Mitsubishi UFJ Financial Group was down 0.6% and Mizuho Financial Group slipped 0.5%.

Hiroyuki Kachi, Saumya Vaishampayan, Kenan Machado, Yuka Hayashi and Willa Plank contributed to this article.

Write to Ese Erheriene at [e-mail]

(END) Dow Jones Newswires

October 06, 2016 23:25 ET (03:25 GMT)

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