Pound continues Brexit decline as Japan and China voice UK investment fears

Officials in Japan and China warned of new threats to the health of the UK and global economy in the aftermath of Britain’s leave decision as the pound continued to fall and Asian markets on Monday struggled to recoup heavy losses.

Japan’s stock market put on a show of resilience – the Nikkei 225 rising more than 2% by early afternoon – as prime minister Shinzo Abe held an emergency meeting early on Monday and instructed the Bank of Japan to do all it could to stabilise financial markets.

“Uncertainty and risk concerns remain in financial markets. It is important to continue to try to stabilise markets,” Kyodo News quoted Abe as saying at the meeting, held just before the Nikkei opened.

China – whose markets largely rode out the start to the week – warned that its companies might want to “wait and see” what the impact is of the Brexit vote before they invest in the country.

China’s premier, Li Keqiang, called on major economies to work together to promote stability.

“I want to make it clear that Europe is an important partner for China and China will continue to be committed to maintaining the growing China-EU relations and China-UK relations,” Li said in his speech at the World Economic Forum in Tianjin, according to Kyodo.

“We hope to see a united and a stable European Union and we also hope to see a stable and prosperous UK,” he added.

The head of China’s top economic planner, Xu Shaoshi – who is the chairman of the National Development and Reform Commission – told the forum on Sunday that the impact of the decision on China’s economy would be limited.

The pound, which suffered record falls against the dollar in the aftermath of the EU referendum result, continued to drop on Monday. Sterling fell 2.4% to US$1.3388, still some distance from the 31-year low of $US1.3228 it reached on Friday.

Tokyo’s Nikkei 225 had risen more than 2% – or more than 300 points – by early afternoon, rebounding at least temporarily from Friday’s 7.9% loss, its biggest since the 2008 global financial crisis.

The Shanghai Composite gained 0.6% to reach 2,870.92 in early morning trading, and Sydney’s S&P ASX200 added 0.5% to 5,136.80.

Other markets in the region fell, however, days after a worldwide plunge wiped out $2.1tn of value from global markets.

Hong Kong’s Hang Seng shed 0.7% to 20,112.35 and Seoul’s Kospi lost 0.1% to 1,923.13. Benchmarks in Singapore, the Philippines and Indonesia also fell.

The Japanese foreign minister, Fumio Kishida, warned that Britain had a duty to listen to Japanese businesses with investments in the UK.

“I would like your country to listen to the views of some 1,000 companies from our country that are doing business in Britain” Kishida told the British ambassador to Japan, Tim Hitchens, at a meeting in Monday morning.

Japanese companies such as Nissan and Toyota directly and indirectly employ 140,000 people in the UK, and some made no secret of their desire for Britain to stay in the EU before Friday’s referendum.

Analysts in Asia sounded a sombre tone, saying political upheaval in Britain, coupled with elections in other EU states would only add to market instability.

“Things are so uncertain that investors still do not have a clear idea how much risk assets they need to sell,” said Hiroko Iwaki, a senior foreign bond strategist at Mizuho Securities.

“But it is safe to assume investors are not yet done with all the selling they need to. I wouldn’t be surprised to see another 10% fall in share prices.”

Mizuho Bank said in a report: “Markets will be nervous given that the EU and UK have some mismatch in terms of timing of exit procedures and negotiations.

“The EU’s legitimacy may be tested by separatist parties,” Mizuho added. Elections in Spain and, next year, in France would “add to the complexity of political dynamics involved in negotiations. Brewing uncertainty suggests that the stage is set for potentially stormy global markets,” it said.

Much will depend on decisions taken by European policymakers in the coming days, said Christine Lagarde, the managing director of the International Monetary Fund.

Economic risks would depend on the level of uncertainty, she said at the Aspen Ideas Festival in Colorado on Sunday. “How they come out in the next few days is going to really drive the direction in which risk will go.”

Some analysts said Asian markets would prove more resilient than others to Brexit fallout.

“Asia should come through this episode with only a few scratches. The trade exposure to the UK is minimal for most Asian economies, and risks to direct bank financing from UK financial institutions appears manageable,” Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong said in a report.