Stock markets in Asia fell Monday, as investors feared the “no” vote in Italy’s referendum on Sunday could hurt the country’s banking system and spark global contagion.
However, major markets in Asia pulled back from initial sharp drops Monday.
Japan’s Nikkei Stock Average was down 1.0%, while Australia’s S&P/ASX 200 was 0.8% lower. Hong Kong’s Hang Seng Index was off 0.4% and Korea’s Kospi’s fell 0.3%.
“Markets reacted with a fairly calm head, with a lot of water flown under the bridge already” this time around, said Chris Weston, chief market strategist at IG Markets. “There is no panic.”
Most of the declines in early Asian trade came after Italian Prime Minister Matteo Renzi offered to resign after conceding defeat in the vote on constitutional reform, sending investors toward safe-haven assets.
The U.S. dollar was broadly stronger against Asian currencies, gaining 0.5% against the Korean won and 0.4% against the Taiwanese dollar. It was up 0.3% against the New Zealand dollar and gained 0.2% over the Australian dollar. The U.S. dollar was down 0.1% against the yen, however, owing to investor appetite for the safe-haven Japanese currency.
The “no” vote could prop up the antiestablishment 5 Star Movement, which has called for a referendum on Italy’s euro membership. It has also advocated breaking away from European Union budget strictures, and moving toward printing a parallel currency.
Rising political uncertainty in the European Union’s fourth-largest economy could increase pressure on the country’s banks, investors said. Banking stocks across Asia declined on worries of any spillover impact.
Japan’s Topix subindex tracking banks fell 2.3%, with Mitsubishi UFJ Financial Group off 2.8%, T&D Holdings down 2.2% and Sumitomo Mitsui Financial Group shedding 2.3%.
In Australia, the Australia & New Zealand Banking Group fell 1.2% and Macquarie Group slipped 2.2%.
“It is well known that a number of Italian banks have sizable bad loans on their books, Monte dei Paschi di Siena being the most well-known case,” said Alex Furber, a sales trader at CMC Markets. “There are huge question marks over whether the government can prop up banks if they fail.”
However, Australia’s DUET Group gained 16.6% after Hong Kong’s Cheung Kong Infrastructure bid about 7.3 billion Australian dollars (US$5.4 billion) for the Australian pipeline operator and power distributor.
Taiwan’s benchmark Taiex opened higher, bucking the region’s declines, but the gain was short-lived. The index was last down 0.1%.
U.S. President-elect Donald Trump over the weekend criticized China on Twitter , and took a call from Taiwan President Tsai Ing-wen on Friday, risking Beijing’s ire.
In Shanghai, investors bought defense stocks, driven by speculation that Mr. Trump’s call with the Taiwanese leader would escalate military tension between Beijing and Taiwan.
Military defense-related shares, such as AVIC Electromechanical Systems and China Spacesat gained 3.2% and 1.3%, respectively, by midday Monday.
“If Donald Trump is communicating with Taiwan from a state level, then it’s seen by the Chinese government as a separatist move. It is very provoking,” said Hao Hong, chief strategist and co-head of research at Bocom International.
Hong Kong’s Hang Seng Index was 0.4% lower and the Shanghai Composite fell 1.3%. The much-anticipated trading link connecting the Shenzhen and Hong Kong stock exchanges launched Monday.
Elsewhere in the region, New Zealand Prime Minister John Key’s resignation led to a 0.8% drop in the local equities benchmark index.
—Deborah Ball, Giada Zampano, Dave Michaels, Ese Erheriene, Stella Xie, James Glynn and Robb Stewart contributed to this article.
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