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Asia markets capitulate as UK votes to leave European Union

Asian stocks cratered, gold prices surged and the dollar briefly plunged below 100 against the yen on Friday as financial markets were rocked by results from the U.K. referendum on European Union (EU) membership that pointed to a Brexit.

The U.K. voted to leave the EU, a dramatic turn that polls did not predict, and which markets failed to adequately price in.

With all 382 districts declared, the leave camp secured 51.9 percent of the vote with 17.4 million votes, throwing markets around the world into turmoil and prompting sterling to hit its lowest level since 1985.

The ramifications of the result were already reverberating across the wider political and economic establishment.

David Cameron announced his resignation as prime minister of the U.K. Friday morning London time, saying in a statement he is likely to be gone by the time of the Conservative Party conference in October. In the stock market, European equities traded sharply lower.

"The biggest concern for markets is what the implication of Brexit will be for the European Union," said Angus Nicholson, a market analyst at spreadbettor IG. "There is a strong incentive for the EU to make the U.K.'s exit as punitive as possible to severely diminish the risk of other members making the same move."

In Japan, the Nikkei 225 tumbled to close 7.92 percent lower on the back of fresh strength in the yen. This was the worst day since since March 15, 2011 when the Nikkei lost 10.55 percent.

The Japanese yen initially weakened to as much as 106.81 against the dollar in early trade, but tracking a drop in the British pound amid the results from the U.K. referendum, the currency strengthened. As of 3:47 p.m. HK/SIN, the dollar fell to 102.96 against the yen, having briefly fallen below 100 earlier.

Across the Korean Strait, the Kospi lost 61.47 points, or 3.09 percent, to 1,925.24.

Australia's ASX 200 dropped 167.50 points, or 3.17 percent, to 5,113.18, as stocks with exposure to the U.K. tumbled.

Henderson Group closed down 12.03 percent; the investment management company is listed both on the Australian Securities Exchange and the London Stock Exchange. Similarly, shares of Clydesdale Bank, which was spun-off from the National Australia Bank's U.K. business, finished down 17.51 percent. BT Investment shares dropped 14.19 percent.

Major Australian banks also sold off, with shares of ANZ off by 4.09 percent, Commonwealth Bank of Australia down 3.27 percent, Westpac down 4.42 percent and National Australia Bank down 3.79 percent.

Chinese mainland markets closed lower, with the Shanghai composite down 38.33 points, or 1.33 percent, at 2,853.62 and the Shenzhen composite down 14.60 points, 0.76 percent, at 1,900.59. In Hong Kong, the Hang Seng index finished down 609.21 points, or 2.92 percent, at 20,259.13.

Symbol
Name
Price
 
Change
%Change
NIKKEI
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HSI
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ASX 200
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SHANGHAI
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KOSPI
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CNBC 100
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"Risk assets and safe havens alike were whipsawed alongside sterling swings," said Wei Liang Chang, a foreign exchange strategist at Mizuho Bank.

Investors fled to haven assets such as government bonds, gold and the yen amid market volatility and uncertainty.

Spot gold climbed 5.08 percent to $1,318.96 an ounce as of 2:13 p.m. HK/SIN, sending gold miners in the region soaring; shares of Newcrest closed up 8.83 percent, Evolution Mining surged 12.33 percent and Alacer Gold jumped 10.42 percent.

Government bonds also saw yields drop; the yield on the 10-year Japanese government bond fell to negative 0.175 percent as of 3:51 p.m. HK/SIN, compared with levels near negative 0.129 percent earlier. The yield on the 10-year U.S. Treasury note fell to 1.5292 percent, compared with 1.704 percent earlier.

Bond prices move inversely to yields.

The currency market swung wildly. The British pound was at 1.3785 against the dollar at 3:53 p.m., after reaching an earlier session low of $1.3224. The pound also traded lower against the yen, at 141.84, compared with an earlier high of 160.10.

Major Japanese stocks were under pressure, with Toyota closing 8.66 percent, Nissan down 8.10 percent and Honda off by 8.32 percent. A stronger yen is a negative for exporters as it reduces their overseas profits when converted into local currency.

The euro also dropped against the greenback, trading at $1.1139, compared with an earlier high of $1.1432. Elsewhere the Australian dollar and the New Zealand dollar also dropped against the dollar.

An employees of a foreign exchange trading company works as he is seen between British Union flag and an EU flag in Tokyo, Japan, June 24, 2016.
Issei Kato | Reuters
An employees of a foreign exchange trading company works as he is seen between British Union flag and an EU flag in Tokyo, Japan, June 24, 2016.

The on-shore Chinese yuan traded at 6.6035 against the dollar. Before market open, the People's Bank of China (PBOC) guided the yuan weaker by fixing the midpoint at 6.5776, compared with Thursday's fix at 6.5658. China's central bank lets the yuan spot rate rise or fall a maximum of 2 percent against the dollar, relative to the official fixing rate.

"Today is a big test day not only for the confidence of Britain towards the European Union but also for the PBOC on managing the movement of the yuan," said Iris Pang, senior economist for Greater China, at Natixis.

"The PBOC has reiterated that the yuan is liberalized towards a more market-oriented currency. It is important for the regulator to demonstrate to the market that it allows movements in the [onshore yuan] and [offshore yuan] market to reflect the volatilities created by the Brexit voting event," she said.

ANZ's Raymond Yeung and David Qu also warned about China's reaction to Brexit in a note to clients.

"China will exercise both its conventional and unconventional monetary policy tools," they wrote. "Premier Li Keqiang visited the PBOC on 20 June and he stated China should maintain its current monetary policy stance. What he might have told the PBOC officials could be how to react to 'Brexit.'"

They added that the Brexit result is unlikely to affect China's immediate economic outlook.

Sharp shares tumbled 16.54 percent on Friday, after the Japan Exchange Group, which operates the Tokyo Stock Exchange, announced the electronics maker would be reassigned from the first section to the second section on the exchange. The first section is for large-sized companies, while the second section is for medium-sized companies.

In Hong Kong, shares of British banks plunged on the back of the U.K. referendum results. HSBC tumbled 6.59 percent, while Standard Chartered bank shares dropped 9.33 percent.

Oil prices were also under pressure Friday Asia time, with global benchmark Brent down 3.73 percent at $49.01 a barrel as of 3:55 p.m. HK/SIN. U.S. crude futures were down 3.77 percent at $48.22. Energy stocks in the region closed lower, with Santos shares down 5.45 percent, Woodside Petroleum down 3.12 percent and Inpex off by 9.11 percent.

Stateside, the Dow Jones industrial average closed up 230.24 points, or 1.29 percent, at 18,011.07. The S&P 500 closed up 27.87 points, or 1.34 percent, at 2,113.32 and the Nasdaq composite added 76.72 points, or 1.59 percent, to 4,910.04.

Holly Ellyatt contributed to this report.

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