Asian markets extended a global sell-off yesterday following heavy losses in New York and Europe while fresh opinion polls fan fears that Britain will vote to leave the European Union.
In a further sign of the sense of panic, the yield on German 10-year sovereign bonds - or bunds - which are considered ultra-safe investments, fell into negative territory for the first time in history.
With policy meetings of the US and Japanese central banks this week, investors are staying cautious, analysts said, while Chinese traders are waiting to see if index compiler MSCI decides to include Shanghai in its global benchmarks list.
The Federal Reserve will conclude a two-day meeting today and while it is not expected to hike interest rates for several months, investors hope it will give some guidance on monetary policy.
Opinion is divided on whether the Bank of Japan will add to its stimulus when it finishes its own gathering Thursday.
With just over a week to go until Britain’s referendum, a series of polls have put the pro-leave camp in front, raising the possibility that its four-decade ties to the bloc could be cut.
The prospect of one of the biggest economies in the EU breaking away has led to warnings of a new wave of world market turmoil as they struggle to recover from the panic that wiped trillions off valuations at the start of the year.
“To survive and thrive as a trader we simply have to adjust to volatility,” Chris Weston, chief market strategist at IG in Melbourne, said in an e-mail to clients.
“The key consideration here is what happens if we do actually see a ‘leave’ vote and a sudden shock to markets.
What have central banks got in the kitty this time around? The answer, of course, is significantly less than in prior cycles,” he said, according to Bloomberg News.
In Asia Tuesday the British pound swung against the dollar and in late trade was around two-month lows of $1.4244. Tokyo stocks ended down 1% - following a 3.5% loss on Monday - with exporters hit by a surging yen. The Japanese currency has rallied over the past week as traders look for safer investments to hedge against uncertainty.
The dollar bought ¥105.90, down from ¥106.19 in New York, while the euro was at ¥119.35, having fallen to a more than three-year low of ¥119 on Monday.
The strength of the yen prompted Japanese Finance Minister Taro Aso yesterday to repeat a warning that officials were ready to intervene in currency markets to tame the unit.
“Sudden and large changes (in forex rates) are not desirable...We will act firmly when necessary,” he told reporters. Sydney was down more than 2% and Seoul 0.4% while Manila lost 1.7%. Hong Kong eased 0.6%. But Shanghai closed 0.3% higher after losing more than 3% in the previous two sessions.
Investors are waiting to see if MSCI agrees to include the latter in its exclusive list, which would make it more appealing to big-name investors.
MSCI has in the past delayed approving Shanghai’s inclusion owing to worries about market accessibility, among other reasons.
In Tokyo, the Nikkei 225 down 1.0% at 15,859.00 points; Hong Kong - Hang Seng down 0.6% at 20,387.53 points and Shanghai - Composite up 0.3% at 2,842.19 points at the close yesterday.