SFC chief says Hong Kong markets operating in ‘orderly manner’ in wake of Brexit rout

The Securities and Futures Commission has been closely monitoring the operations of fund houses, brokers and financial intermediaries amid the volatility in the currency and stock markets after Britain voted to leave the European Union, according to SFC chairman Carlson Tong Ka-shing.

Tong told the South China Morning Postthe Brexit vote had surprised markets globally and the SFC had been working closely with the Hong Kong Exchanges and Clearing to closely monitor the trading, clearing and settlement of all stockbrokers.

“We have been closely in touch with all financial intermediaries as well as keeping a close watch on funds’ liquidity and settlement,” he said. “So far, we have not seen any problem. The markets have been trading and operating in an orderly manner.”

Britons voted on June 23 in favour of ending their country’s 43-year membership in the 28-nation bloc, which surprised the markets as previous polls had shown the remain camp would win.

The vote result led to a sell-off that wiped US$2 trillion off the value of global markets on June 24 – the worst loss since the 2008 global financial crisis – with the Hong Kong market falling 2.9 per cent, Japan 8 per cent, Frankfurt 7 per cent, Paris 8 per cent, Italy 12 per cent and London 3.2 per cent.

The markets have since gradually recovered.

The pound was also sold down on June 24, plunging 12 per cent intraday to the lowest in 31 years before bouncing back for a loss of 8 per cent on the day.

Uncertainties haunted the market as Britain may need two years to negotiate terms with the EU on the exit while there are fears Scotland and Northern Ireland may call for referendums to secede from Britain as they want to remain in the EU.

Hong Kong Investment Funds Association chief executive Sally Wong Chi-ming said many fund houses were monitoring the situation closely.

Mark Haefele, the global chief investment officer of UBS Wealth Management, said investors should avoid British-exposed stocks listed in former colonies such as Hong Kong, South Africa, Australia, Singapore and India.

“The companies in the basket boast a big local shareholder base, either controlling shareholders or institutional investors, some of which might move to reduce their UK exposure over time. For these investors, the British pound is not their reference and functional currency, so ongoing uncertainty in the UK could lead to a rotation to more domestic-focused stocks,” Haefele said.

Nikolaus von Bomhard, Munich Re’s chief executive, said the British dream of independence from the EU would turn into a nightmare.

“Nostalgia has trumped reason,” von Bomhard said. “I hope it will be possible to limit the damage to a certain extent in the forthcoming negotiations.

“The EU is now in desperate need of a fresh start in order to rule out any further fracturing. Without bold reforms and a compelling vision of a strong and democratic Europe, the withdrawal of the UK will turn out to be the beginning of the end for the EU.”