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Nikkei leads gains among major Asian bourses, closing up 2.4 pct

Major Asian markets closed higher on Monday, shrugging off Friday's global selloff sparked by the U.K.'s unexpected vote to leave the European Union (EU).

Australia's ASX 200 closed higher by 24.04 points, or 0.47 percent, at 5,137.23, reversing earlier losses of near 1 percent. The financials sub-index, which accounts for nearly half of the broader index, ended down 0.24 percent while major Australian banks closed mixed.

Shares of ANZ finished down 0.73 percent, Commonwealth Bank of Australia shares were up 0.32 percent, Westpac shares finished higher by 0.14 percent and NAB shares were off by 0.41 percent.

In South Korea, the Kospi finished near flat at 1,926.85. Hong Kong's Hang Seng index traded near flat in the late afternoon session. Chinese mainland markets closed in positive territory, with the Shanghai composite up 41.23 points, or 1.44 percent, at 2,895.52 and the Shenzhen composite higher by 46.09 points, or 2.42 percent, at 1,946.69.

Japanese shares led gains across the region, with the benchmark Nikkei 225 closing up 357.19 points, or 2.39 percent, at 15,309.21. The index had tumbled 7.92 percent Friday on the back of fresh yen strength.

Analysts agreed that markets were looking at short-term volatility surrounding Brexit. On Friday, around $2.1 trillion was wiped off the value of global markets. Japan's benchmark index fell near 8 percent, the Dow dropped 610 points and sterling hit a more-than-30-year low against the dollar.

Chris Weston, chief market strategist at spreadbettor IG, said in an afternoon note on Monday that "risks are building," and that the buying seen today "suggest most in the market feel we are seeing a short-term shock than something more protracted and sinister."

JPMorgan, in a note to clients Friday, agreed, downplaying the long-term global impact of a Brexit. The bank said the sell-off in equities Friday was due to the surprise and uncertainty surrounding the outcome of the vote. But, the bank added, "beyond a few weeks of volatility, this shock has a largely regional impact."

"Globally, we remain simply in a low-growth world," JPMorgan said in the note.

The leave camp secured 51.9 percent of the vote in the U.K. referendum, with 17.4 million votes. The ramifications of the unexpected result have been reverberating across the wider political and economic establishment since Friday, as British Prime Minister David Cameron resigned.

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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Cameron said he was likely to be gone by the time of the Conservative Party conference in October. Scotland's First Minister, Nicola Sturgeon, said on Saturday that the country would work to protect its EU membership, including preparing for a fresh independence vote.

"The U.K.'s unprecedented decision to leave the European Union has sparked a dramatic flight to safe haven assets and currencies, " said Brian Martin at ANZ in a note on Friday. "The initial reaction was pronounced but is now moderating."

Government bond yields fell; the yield on the 10-year Japanese government bond fell to negative 0.192 percent, up from a session low of negative 0.209 percent. Bond prices move inversely to yields.

Gold, also considered a haven asset, traded up Monday, with spot gold up 0.84 percent $1,326.51 as of 2:45 p.m. HK/SIN.

In the currency market, the dollar came off its session high against a basket of currencies. The dollar index traded at 95.986 as of 2:41 p.m. HK/SIN, off an earlier high of 96.402 but well above from levels below 94.00 before the Brexit vote.

The pound traded at $1.3434 as of 2:42 p.m. HK/SIN on Monday, after falling as low as $1.3224 on Friday.

Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, said in a note on Friday the dollar and the yen "benefited significantly from Britain's decision to leave the European Union ... because dollar and yen always tend to outperform in times of risk aversion."

The Japanese yen traded against the dollar at 101.88 as of 2:43 p.m. HK/SIN Monday, after briefly dipping below 100 on Friday as investors flocked to haven assets such as the yen and government bonds in the aftermath of the Brexit vote.

Japanese Prime Minister Shinzo Abe said on Monday he told Finance Minister Taro Aso to watch the currency markets carefully and take steps if necessary to stabilize the yen, according to Reuters. Abe's comments came at an emergency meeting between the government and the Bank of Japan.

Major Japanese automakers were under pressure on Monday, with shares of Toyota closing down 1.7 percent, Nissan down 2.53 percent, Honda up 0.53 percent and Mazda down 9.67 percent.

Masataka Kunugimoto, an analyst at Nomura, said Brexit will have major negative impact on Japanese automakers, particularly as a stronger yen makes exports less competitive.

A European Union (EU) flag, left, and a British Union Flag, also know as a Union Jack, stands in front of a monitor displaying the exchange rates of the Japanese yen against the British pound at a foreign exchange brokerage in Tokyo, Japan, on Friday, June 24, 2016.
Tomohiro Ohsumi | Bloomberg | Getty Images
A European Union (EU) flag, left, and a British Union Flag, also know as a Union Jack, stands in front of a monitor displaying the exchange rates of the Japanese yen against the British pound at a foreign exchange brokerage in Tokyo, Japan, on Friday, June 24, 2016.

"We estimate that the aggregate operating profits of Japanese automakers will be reduced by 84.9 billion yen ($833 million) for each ¥1 of yen strengthening versus the US dollar, ¥9.7 billion for the same versus the euro, ¥1.5 billion for the pound sterling, ¥11.9 billion for the Australian dollar, and ¥5.4 billion for the Canadian dollar," Kunugimoto wrote in a note to clients.

Nomura also lowered its Mazda rating to "neutral" as of June 24. "We have lowered our earnings forecasts to reflect European market slowdown and sharp rise in the value of the yen, which has diminished Mazda Motor's valuation appeal," wrote Kunugimoto.

ANZ's Martin warned, however, it would take time for markets to settle.

Britain has yet to trigger Article 50 of the Lisbon Treaty, which would formally begin negotiations with the EU to leave the bloc.

"We think Britain and the EU need to quickly move past the phase of shock, denials and recriminations and enact a response that will reassure markets in the immediate term," said Wei Liang Chang, a foreign exchange strategist at Mizuho Bank. "The best way forward is to commit to negotiations on maintaining a beneficial trading relation despite Brexit, thus reducing uncertainty for businesses and households."

Other market watchers were less upbeat about the future of the U.K. Goldman Sachs economists wrote in a report the U.K. is likely to enter a "mild recession" by early 2017.

In China, the People's Bank of China guided the yuan weaker against the dollar, with a mid-point fix at 6.6375; the on-shore yuan traded at 6.6380 as of 2:46 p.m. HK/SIN.

Oil prices advanced in the afternoon during Asian hours, with global benchmark Brent up 0.76 percent at $48.78 a barrel, while U.S. crude futures were up 0.38 percent at $47.82.

Companies with significant exposure to the U.K. remained under some pressure. In Australia, Henderson Group shares closed down 15.92 percent and Clydesdale Bank was off by 9.41 percent. Hong Kong-listed shares of British banks Standard Chartered and HSBC traded mixed, up 0.52 percent and down 1.16 percent respectively. Espirit shares were down 2.32 percent.

Stateside, the Dow Jones industrial average closed 610.32 points or 3.39 percent lower at 17,400.75; the S&P 500 index dropped 76.02 points, or 3.6 percent, at 2,037.30 and the Nasdaq composite fell 202.06 points, or 4.12 percent, at 4,707.98.

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