Asian Stocks Retreat for Fourth Day as Brexit Concerns Intensify

  • Volatility in Chinese shares climb to highest in three months
  • Topix falls to two-month low as yen strengthens third day

Asian stocks headed for the biggest four-day drop since February amid investor anxiety before central bank meetings and Britain’s vote on European Union membership. Australian shares led declines as trading resumed after a holiday.

The MSCI Asia Pacific Index declined 0.7 percent to 126.47 as of 4:16 p.m. in Hong Kong. The gauge has tumbled 4.4 percent in the past four days as new polls indicated more Britons favor leaving the EU than want to remain. Tokyo shares sank, with the Topix index falling to a two-month low. Volatility in Chinese stocks surged to a three-month high before MSCI Inc.’s decision on whether to add yuan-denominated trades in its global indexes.

“The market is trying to price in Brexit and as a result there’s a flight to safety,” Kelvin Tay, regional chief investment officer at UBS Group AG’s wealth management business in Singapore, said by phone. “We’re now moving into a crucial period before the vote itself. Things are just going to get volatile from here on.”

The equity selloff began at the end of last week, with the MSCI All-Country World Index sinking 1.4 percent on Friday after the Brexit poll result was published. Volatility gauges have surged since then, with the Chicago Board Options Exchange Volatility Index and Nikkei Stock Average Volatility Index jumping more than 20 percent on Monday. Investors are also cautious before this week’s policy decisions from the Federal Reserve and the Bank of Japan.

Japanese Stocks

Japan’s Topix index dropped 1 percent after plunging 3.5 percent on Monday, the most since February. The Tokyo Stock Exchange Mothers Index posted its biggest drop since August as high-growth biotech companies Sosei Group Corp. and Cyberdyne Inc. plunged at least 7.1 percent after investors dumped some of the high-flyers on the gauge tracking the nation’s small-cap shares.

Japanese exporters declined, with Honda Motor Co. and Canon Inc. sliding at least 1.1 percent as the yen strengthened for a third day to 105.87 against the dollar. Britain appeared to be on course to leave the EU, with four polls from three companies putting the “Leave” campaign ahead of “Remain.” The Sun, Britain’s biggest-selling newspaper, backed a so-called Brexit on its front page.

South Korea’s Kospi index slid 0.4 percent. New Zealand’s S&P/NZX 50 Index fell 1.3 percent. Australia’s S&P/ASX 200 Index, which was closed on Monday, declined 2.1 percent. The Philippine Stock Exchange Index dropped 1.3 percent. Singapore’s Straits Times Index lost 0.5 percent. Hong Kong’s Hang Seng Index dropped 0.6 percent. Taiwan’s Taiex index added 0.5 percent.

MSCI Decision

The Shanghai Composite Index climbed 0.3 percent at the close, erasing losses of as much as 0.4 percent. MSCI will announce early Wednesday morning Hong Kong time whether China’s domestic equities will be added to its global benchmark gauges -- a move that would initially spur inflows of as much as $30 billion, according to HSBC Holdings Plc. The pick up in price swings comes after volatility gauges fell to multi-month lows in May as turnover slumped. While economic activity remains subdued, there are few signs the government will add to stimulus as officials try to rein in a growing debt burden and stop capital outflows.

“The market is getting a bit nervous before the MSCI decision as we are not totally sure that the shares will be joining global indexes,” said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. “There will probably be some volatile trading going forward as lackluster economic data are expected to pressure the market.”

Santos Ltd. dropped 7 percent in Sydney, leading declines among energy producers as crude oil headed for a fourth day of declines. Lotte Chilsung Beverage Co. sank 3.9 percent in Seoul as prosecutors raid more Lotte Group units as investigations widen into the business empire amid allegations of slush funds and embezzlement. Hanjin Shipping Co. gained 6.3 percent as concerns that the money-losing shipping line wouldn’t be able to survive eased after the government indicated a merger with a smaller rival is possible amid an industry overhaul.

Futures on the S&P 500 Index declined 0.3 percent. The U.S. equity benchmark index slipped 0.8 percent to close at a three-week low on Monday, with raw-material producers, industrial and technology shares falling the most. West Texas Intermediate crude for July delivery fell 1.5 percent.

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