Asia: Markets extend gains on Brexit stimulus bets

[HONG KONG] Asian markets rose for a second day on Wednesday on hopes that authorities will unveil fresh stimulus to counter the effects of Britain's shock vote to leave the European Union.

After Friday's battering, regional investors have this week led a return to global equities and higher-yielding currencies.

However, analysts warned there would likely be a period of volatility as Britain and its EU partners try to hammer out an exit agreement.

Wednesday's gains built on the previous day's advance after Seoul unveiled a US$17 billion plan to support South Korea's already fragile economy, while news emerged that Japan was considering a similar move.

Before the Tokyo bourse opened, Prime Minister Shinzo Abe, Finance Minister Taro Aso and Bank of Japan chief Haruhiko Kuroda held talks on containing the Brexit crisis.

"The panic selling in global markets has eased," Chihiro Ohta, a senior strategist with SMBC Nikko Securities, told Bloomberg News.

"The fact that there's a meeting going on between the government and the Bank of Japan will serve as a psychological anchor."

Japan's Nikkei ended the morning session 1.4 per cent higher, while Hong Kong was up 0.9 per cent, Shanghai gained 0.4 per cent and Sydney put on 0.7 per cent. Seoul jumped 1.3 per cent, while Singapore, Taipei and Wellington each tacked on about one per cent.

The advances follow sharp gains in New York and Europe.

And while the British pound edged down slightly against the dollar, it has stabilised around US$1.33, well up from the 31-year-low of US$1.3121 it touched Monday.

In a sign that traders have calmed, higher-yielding, riskier, currencies edged up - Malaysia's ringgit gained 0.6 per cent and the South Korean won was 0.5 per cent higher, while the Australian dollar and Indonesian rupiah also pushed up.

Oil also built on the previous day's strong gains, with West Texas Intermediate up one per cent and Brent 0.8 per cent higher.

Stephen Innes, senior trader at OANDA Asia Pacific, said in a note: "The fiscal stimulus rumours saw risk appetite back on cue." But he warned: "This relative calm is unnerving, given how fragile investor sentiment is, and the likelihood of renewed (pound) volatility. As a result, FX markets should remain a hot spot for the foreseeable future. Liquidity is gradually improving and appears to have weathered the initial Brexit sell off."

Attention is now on how Britain negotiates its way out of the EU after four decades of partnership.

Adding to the uncertainty is the fact Prime Minister David Cameron has said he will stand down in the autumn, leaving his successor to hammer out the deal.

Meeting in Brussels, impatient EU leaders Tuesday called on Mr Cameron to speed up the split, warning Britain cannot expect special treatment outside the bloc.

Mr Cameron said he wants the break to be "as constructive as possible" and that he wanted the "closest possible relationship" with Europe afterwards.

But German Chancellor Angela Merkel warned he could not "cherry-pick" in the exit negotiations - and there would be a price for Britain to pay.

Angus Nicholson, a markets analyst at IG in Melbourne, told clients the crisis "looks like it may be heading into an awkward period of uncertainty".

AFP