UK

Asian markets went to sleep on Thursday confident that the UK would still be part of the European Union the following morning and that business would go back to normal. But the UK’s public defied expectations and voted to leave the EU, forcing Asia bankers to completely rethink their plans.

The UK’s decision to quit the EU has dealt an immediate hit to currencies, credit and equities, but also puts key components of the European derivative market in doubt.

Capital markets have been hit by a cataclysm, the worst political shock since 11 September 2001 — though the immediate effects on financial markets may not be as grave as those of the 2008 financial crisis, because the solvency of banks is not in question.

Despite the carnage in UK and European bank shares, the bosses of major investment banks have reassured staff that immediate changes won’t follow. But recruitment industry sources predict the opposite, with one headhunter citing client plans to move 37,000 jobs to countries that plan to stay in the European Union.

Emerging market bankers called Britain’s decision to leave the EU on Friday "madness" and in line with the broader global market, EM credit has lost all the gains it made last week.

European credit spreads enjoyed a unanimous rally on Thursday as the odds of the UK leaving the European Union receded.

Market indicators suggest the UK will vote on Thursday to remain part of the European Union, with riskier assets outperforming safe haven instruments — meaning the public sector bond market could reopen next week.

As UK voters made their way to the polling stations, Europe’s investment grade corporate bond market geared up for a frantic Friday, when the referendum’s results are announced.

A British vote to leave the European Union could lead to the reopening of a spat between the Bank of England and the European Central Bank over clearing euro-denominated trades. Last year, the UK won a court battle in the European Court of Justice, keeping the right to clear euro-denominated trades outside the eurozone.

Investors have agreed to a number of changes to Nationwide Building Society’s covered bond programme. The publication of voting results in full is in line with the European Central Bank’s recommendation — but something that is still rarely seen in the market.

Markets watchers in Asia said they were optimistic, as GlobalCapital Asia went to press on Thursday, that next week would be a return to business as usual, given their widespread expectations that the UK would choose to remain in the European Union. But some warned that, irrespective of the outcome, currency risks could spill over to other asset classes, adversely affecting bonds and equities.

With European corporate bond issuance unsurprisingly non-existent on Wednesday, spreads have held steady in secondary markets ahead of the UK’s referendum vote on its EU membership.