The Australian share market faces a period of prolonged uncertainty as the possibility continues to grow that Britain could vote to leave the European Union.
As the benchmark S&P/ASX200 endured a fourth straight day of losses on Wednesday, there were mixed results across the rest of the Asia-Pacific as investors grappled with the prospect of the world’s fifth-biggest economy pulling out of the EU and continued concerns about the state of the Chinese economy.
The S&P/ASX200 benchmark closed down 56 points at 5,147 points on Wednesday, a fall of just over 1% following overnight losses in London as fresh polls indicated a majority were in favour of a Brexit and amid fears the impact of such a vote could spread across the world. Stocks were also down for a fourth successive day in New York.
Nicholas Forsyth, director of online trader Market Matters, said that whatever the result of the 23 June referendum, the overall outcome would be an “economic mess”.
“A Brexit result would be very dangerous for equities and should not be underestimated by the nervous,” he said.
He added there was more geopolitical turbulence for the market on the horizon with the Australian election on 2 July, followed by a potentially volatile US presidential showdown between Hillary Clinton and Donald Trump.
Chris Weston of IG agreed the mood in the markets was febrile. “While a ‘remain’ vote is still my base case, I would expect strong volatility before and violent swings in either direction throughout the day.”
The dollar also suffered some early punishment, dropping to US73.57c before recovering to US73.84c at 5pm AEST.
Ric Spooner, chief market analyst at CMC Markets, said the uncertainty around the UK vote could easily see a return of the heavy selling that saw the ASX200 lose more than 2% on Tuesday.
“In the current circumstances, the sort of selling pressure we saw yesterday could easily return over coming days,” he said.
“Polls are currently favouring a leave vote but in a volatile situation, some doubts remain about whether people will actually vote this way when it comes to it.”
The market had held off trying to anticipate the result, he said, which increased the risk of a sharp fall if the leave camp won on 23 June. But it could equally mean a boost for valuations in the event of a remain vote.
Across Asia, markets were more positive despite a surprise decision by the US index provider MSCI not to include domestic Chinese equities in its indices.
Mainland Chinese shares, among Asia’s worst performers this year, were mixed while Hong Kong slid, as markets which had expected Chinese A-shares to be included in the emerging market index considered the announcement.
MSCI’s broadest index of Asia-Pacific shares outside Japan were down 0.1%. Japan’s Nikkei reversed earlier losses to rise 0.7%.
The Chinese central bank set the yuan midpoint rate at 6.6001, the lowest level against the US dollar since January 2011. However, it eased to 6.6020 per dollar on the open , and was last trading slightly higher at 6.5978.
The more widely traded offshore yuan rose to 6.6071 after earlier falling to 6.6152 to the dollar, its weakest level since early February as worries about China’s economy deepened after data showed growth in China’s fixed-asset investment slowed to a 15-year low.
However, there was some better news for the ecomnomic outlook on Wednesday as the latest measure of Australian consumer sentiment showed that households were still fairly optimistic about the outlook.
Although the monthly Westpac index dipped 1% in June, it followed a huge 8.5% surge in May – a result boosted by the Reserve bank’s decision to cut the cash rate to 1.75%.
At 102.2 the index was still in positive territory overall – readings above 100 indicate optimists outnumber pessimists – and confidence was 7.2% above its level a year ago.
