Volatility flares in world markets as Brexit spurs risky asset sell-off

Tokyo/Singapore, June 13: A resurgence in volatility across global markets left investors from Japan to Hong Kong scrambling to sell their riskiest holdings.

Akio Yoshino, chief economist at Amundi Japan in Tokyo, said his firm is dumping stocks to buy yen-denominated bonds as so-called fear gauges on Asian shares climb to the highest levels in three months. In Hong Kong, Ken Peng, an Asian investment strategist at Citi Private Bank, is urging clients to protect themselves against equity declines.

Just days after global stocks rose to a 2016 high, mounting concern the UK will vote to leave the European Union is spurring a sell-off in risky assets. A survey published by the Independent newspaper found 55% of voters in favour of a socalled Brexit vote on June 23, a move that economists predict would drive the pound to a three-decade low.

“The Independent’s survey on Brexit was shocking,” said Yoshino, whose firm oversees the equivalent of $33 billion. “We’re moving out of equities and buying yen-based debt — JGBs, samurai bonds and corporate bonds.”

It’s not just Brexit that investors are worrying about. This week sees policy decisions by the Bank of Japan and the US Federal Reserve, as well as MSCI’s review on whether to add stocks listed in China to its global indexes. The Nikkei Volatility Index soared 25% to 32.38 on Monday, its highest level since March 1, as Japan’s benchmark stock indexes tumbled 3.5%. A similar measure of swings on Hong Kong stocks rose to the highest since March 3 as the Hang Seng Index lost 2.5%.

Unhappy Monday

The Stoxx Europe 600 Index slid 1.6% Monday, adding to Friday’s 2.4% tumble, and a gauge of regional equity volatility climbed to a fourmonth high. The yen strengthened, while the British pound fell to an eight-week low. Government bond yields in Japan, the UK and Taiwan dropped to record lows.

“Everything has been hijacked by the UK vote,” Citi’s Peng said by phone. “It’s very difficult to convince anyone to have conviction before the vote happens.”

The equity selloff began at the end of last week, with the M SCI All-Country World Index sinking 1.4% on Friday after the Brexit poll result was published. Short-selling accounted for 47.1% of transactions on the Tokyo Stock Exchange on Friday, the most in records going back to 2008, according to bourse data compiled by Bloomberg. While bearish bets slipped to 43.3% on Monday, that was still the third-highest proportion in the data.

Gary Dugan, the Dubaibased chief investment officer for wealth management at Emirates NB DP J SC, sold dollar-denominated corporate bonds and bought Treasuries last week as part of its effort to trim holdings that may get hurt by a decline in stocks. The largest bank in the United Arab Emirates is already underweight equities, he said.