Carnage in markets: Asian stocks, Sensex plunge as Brexit comes true
In volatile trading, Asian stock markets fell sharply on Friday with Tokyo stocks, U.S. futures and oil prices plunging as the early results in Britain’s referendum challenged the earlier anticipation that Britain would remain in the European Union.
India’s key stock indices plunged over 3% in morning trade, with the BSE Sensex slumping 1,000 points, tracking a sell-off in global markets as results showed Britain voted to leave the European Union, shocking investors and triggering jitters across the globe.
Britain has voted to leave the EU to take greater control of its economy and its borders, shattering the stability of the continental unity forged after World War II. The decision launches what will be years of negotiations over trade, business and political links with the EU, which will shrink to a 27-nation bloc.
The decision that Britons took roiled global markets and raised fears of a shock to the world’s economy.
British markets plunged, with sterling hitting a 31-year low in its biggest fall on record and UK stock futures pointing to a steep fall at the market open after Britons voted to leave the European Union. Asian markets also tumbled.
Sterling suffered its biggest fall on record as vote counts showed the Brexit camp had won the landmark referendum and investors grappled with its implications.
The British pound plummeted more than 10% in six hours while the yen surged nearly 4% to the US dollar as investors seeking safety snapped up the Japanese currency.
On Thursday, Wall Street finished with rallies as pre-poll forecasts showed that Britain would keep the EU membership. Asian stock markets opened the day higher but the mood turned sour as initial results trickled in, showing the race to be unexpectedly tight.
Japan’s Nikkei Stock Average slumped over 1,200 points or near 8%, Hong Kong’s Hang Seng declined 975 points or 5% and South Korea’s Kospi sank 4.2%. Other Asian markets were also down 1-4%.
Australia’s S&P/ASX 200 fell 3.7% to 5,088.20.
The BSE Sensex was down 979 points or 3.6% at 26,023.22 and the wider NSE Nifty declined 305 points or 3.7% to 7,965.70.
“The knee-jerk reaction seems to be on account of the fact that most people expected a verdict of remain in the EU and the vote has turned out to be exit. Brexit will dominate the headlines for a few days,” Rajeev Thakkar, CIO, PPFAS Mutual Fund, said.
Stocks of companies that have a strong exposure to the UK were among the biggest losers on India’s stock exchanges.
Tata Motors, the owner of British luxury Jaguar Land Rover unit was down 12%. According to recent British news reports, JLR has internally predicted an estimated 1 billion pounds loss by 2020 if Britain exited from the EU.
Tata Steel was down 9.3%, Hindalco declined 8.4%, Tata Global Beverages fell 6.6% and Bharat Forge slipped 5.4%.
Banks, pharmaceuticals, software services providers, and automobiles were among the other major losers.
While markets are likely to remain volatile for the next few sessions, market analysts say Brexit won’t have a significant impact on India, given its strong fundamentals and good buying opportunities will emerge post this sell-off.
“Whenever there is a crisis in the world, it’s a good opportunity to buy in India. The real economy in India is not directly affected. As far as Indian companies’ exposure to the UK is concerned, it is only 25% of their total business,” Nimesh Shah, CEO of ICICI Prudential AMC, said.
“So some part of their business may get affected. But the fundamental issue of India is unaffected. It is a beautiful correction and good opportunity to step in and buy,” Shah added.
The rupee took a sharp plunge of 96 paise against the US dollar to crash below the 68-level, but RBI intervention to infuse liquidity helped the local currency recoup some early losses.
It was trading down by 58 paise at 67.83 against the American currency in late morning deals.
The Indian unit opened sharply lower by 63 paise at 67.88 against Thursday’s closing level of 67.25 at the Interbank Foreign Exchange (Forex) market.
It continued the slide and breached the 68-level to hit a low of 68.21 on heavy demand for the American currency from importers and foreign fund outflows as leads show ‘Leave’ camp ahead in ‘Brexit’ referendum vote.
However, the rupee recovered partially to 67.83 on heavy selling of the greenback by banks and RBI intervened with liquidity support, still down by 58 paise.
S&P 500 and Nasdaq E-mini futures plummeted 5% early on Friday, hitting overnight limit thresholds.
The drastic drops in US stock index futures prices suggest Wall Street will open with steep losses on Friday. Futures on the Dow Jones industrial average fell 4%.
“It’s going to be ugly in the morning. This is going to catch a lot of people wrong-footed, end of discussion. Obviously, markets were not pricing this in,” Mike Ellingsen, a stock trader at US Global Investors Inc in San Antonio, Texas, told Reuters.
Reflecting fear among investors, futures on the VIX volatility index surged 10.57 points to 27.20.
The last time the CME had a circuit breaker triggered on index futures was August last year, when a major sell-off in Chinese stocks pummeled shares around the world.
Gold, currencies and crude
As in most crisis, investors across the world pulled out of equities and bought gold, causing the yellow metal to surge sharply in bullion markets globally.
In India, on the commodity exchange MCX, at 11:00am, gold was trading 6.5% up at Rs 31,865 for 10 grammes. This is the highest level in almost three years.
Globally, the yellow metal was trading at its highest since 2014 as immediate delivery jumped by as much as 8.1% to $1,385.54 an ounce.
Since London is also the centre of the commodity trade, the panic situation impacted prices of metals such as steel, copper and aluminium.
On the MCX, prices of the base metals fell in the range of 1-3% which is likely to have an impact on Indian mining and metal companies which had just begun to see a revival, after China had recently started to emerge out of its slowdown.
In currencies, the dollar fell to 101.35 yen from 104.80 yen while the euro weakened to $1.102 from $1.132. China’s yuan fell to its weakest level against the dollar in more than five years.
Benchmark US crude plummeted 6%, or $3.00, to $47.11 per barrel in New York. Brent Crude, the benchmark for international oil price, fell 5.3%, or $2.70, to $48.21 per barrel in London.
As the US dollar strengthened, oil prices reversed gains from overnight. Brent crude oil was last down 1.5% at $50.16 a barrel.