Asia equities slip as investors eye Italian fallout

Monday 3.00am GMT

Overview

Markets across Asia are weaker on Monday following a weak lead from Wall Street on Friday and as investors kept a cautious eye on Italy’s referendum, which has led to the resignation of Prime Minister Matteo Renzi.

Hot topic

Given the shock of both the UK vote for Brexit and Mr Trump’s victory in the US presidential election, investors are more on guard for political upsets in the eurozone that have the potential to raise questions over European Monetary Union. Sunday’s Italian referendum is followed by French presidential elections in the spring in which Marine Le Pen, leader of the far-right National Front, is expected to make it through to the final round.

What to watch

The euro, for obvious reasons, is the barometer of sentiment towards the referendum.

Mr Renzi said he would offer his resignation after voters rejected his efforts to streamline the country’s political system. The euro fell as much as 1.5 per cent to its lowest level since March 2015 before stabilising to be 1.1 per cent weaker at $1.0552.

It is Italy’s banking system, though, which analysts expect to be at the centre of any market fallout from the referendum. Saddled with about €360bn of problematic loans, the banking sector has lost more than half its market value this year as investors struggle to gain confidence in any solutions to recapitalise the most troubled lenders.

Equities

Major benchmarks across the region are in negative territory. Japan’s Topix is down 0.7 per cent, while Australia’s S&P/ASX 200 is 0.8 per cent lower.

A new trading link between Hong Kong and the nearby city of Shenzhen went live this morning but the markets were lower. Hong Kong’s Hang Seng was down 0.2 per cent, while China’s Shanghai Composite was down 1.4 per cent and the technology-focused Shenzhen Composite was off 0.8 per cent.

Among notable stock moves, Duet Group, an Australia-listed infrastructure company, was up as much as 20 per cent after Hong Kong billionaire Li Ka-shing’s Cheung Kong Infrastructure Holdings made a A$7.3bn ($5.4bn) bid for the company.

Forex

The big mover among Asian currencies today is the New Zealand dollar, down 0.6 per cent. Already weak in early trade, the kiwi suffered a further knock after John Key, the country’s prime minister, announced unexpectedly that he was stepping down.

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