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Asian Markets at Close Report

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Jun 21, 2016

Asian Markets at Close Report, by MarketWatch on June 21, 2016: Nikkei Leads Asia Mostly Higher as Bets Against Brexit Rise.
Dominique Fong 
Shares in Asia mostly rose Tuesday, as investors bet that the U.K. would vote to remain in the European Union.

Japan’s Nikkei Stock Average NIK, +1.28%  ended up 1.3%, Australia’s S&P/ASX 200 XJO, +0.33%  rose 0.3%, while Korea’s Kospi SEU, +0.08%  gained 0.1%. Hong Kong’s Hang Seng Index HSI, +0.77% ended up 0.8%, while China’s Shanghai Composite Index SHCOMP, -0.35%  bucked the region, dropping 0.4%.
Growing relief that the U.K. might stay in the EU propelled U.S. stocks higher Monday, with the sentiment spilling over into Asia on Tuesday. Two weekend polls showed — by tiny margins — that U.K. voters were against a British exit, or “Brexit,” from the EU, though polls released Monday night were mixed.
“The only theme this week is Brexit, and there’s nothing else,” said Tareck Horchani, a senior sales trader at Saxo Capital Markets in Singapore. But “the impact of Brexit on Asia is going to be quite limited ... compared to what you see in the Europe and U.S.”
Read: Soros says Brexit aftermath will be worse than the time he broke the Bank of England
Investors in Asia are paying close attention to the British vote, in view of a data-light week for regional economic news, as even a slight change of direction in the polls can have a large impact on the Japanese yen, whose strength hurts the competitiveness of Japanese exporters.
Plus: Anatole Kaletsky on how Brexit (and Donald Trump) could upend the global economy
In early Asian trading hours, the Japanese yen USDJPY, +0.56%  veered close to a 22-month record high against the U.S. dollar — stubbornly strong despite general relief over lower chances of a Brexit.
Richard Thaler: 'Brits are voting with their guts'
U.K. voters head to the polls to decide if they should leave the EU. Are they voting with their heads or their hearts?
Analysts said the yen’s rise showed investors were keeping long bets on the safe-haven currency as a hedge, in case a Brexit roils markets.
But the currency weakened slightly after Japan’s finance minister, Taro Aso, said in the morning that the government wouldn’t intervene in currency markets “easily.” The yen was recently trading at ¥104.55 to the dollar.
“We’ll see a mixture of a yen strengthening and weakening as long as the outcome of the U.K. referendum remains uncertain,” said IG Securities market analyst Junichi Ishikawa.
As the yen gave up ground versus the dollar, the Nikkei drifted higher, with Tuesday’s gains helping it recoup nearly all its losses suffered in the past week, since the June 13 close.
Though Brexit worries have eased, some investors still trimmed their positions ahead of the U.K. referendum on Thursday.
Market analysts and economists at Citigroup said in a note that the bank recently cut risk to portfolios, including overweight bets in Asian emerging-markets rates and bonds, “in view of the potentially large market swings” leading up to and after Thursday’s vote.
Meanwhile, investors and traders will watch closely U.S. Federal Reserve Chairwoman Janet Yellen’s testimony before the Senate and House committees on Tuesday and Wednesday, on any guidance she may give about the outlook on interest rates.
Read: ‘Could a Trump victory hurt the economy?’ and other tough questions for Yellen