Asian stocks were awash in red on Monday as global economic uncertainty spooked nervous investors.
Japan’s benchmark Nikkei led the retreat, shedding 3.5%, while Hong Kong’s Hang Seng Index dropped 2.6%.
Investors are looking ahead to a policy announcement later this week from the U.S. Federal Reserve, which could hike interest rates. The Bank of Japan is also due for a policy announcement mid-week.
On top of that, there is the looming possibility of turmoil in Europe next week if the U.K. votes to leave the European Union.
Most forecasters, the U.K. government and the International Monetary Fund have warned of economic shocks from a “Brexit” — largely because it’s impossible to know whether the country would continue to enjoy easy access to the vast European market.
“Usually, around these periods, the market will be volatile,” said Michael Liang, chief investment officer of Foundation Asset Management. “People want to keep the powder dry — you want to wait and see exactly what the outcome is going to be before you take further action.”
The Shanghai Composite closed down 2.8% as Chinese markets reacted to a spate of disappointing economic data. Later this week, index provider MSCI will announce whether or not to include China in its widely tracked global benchmarks.
Beijing has long lobbied to be included in its emerging markets index — a vote of confidence in the country’s stock markets that could attract more investment dollars. But MSCI said last year that China’s markets were still not ready for primetime. In 2015, Chinese stocks enjoyed an incredible rally before the bubble burst, forcing investors to absorb huge losses.
When markets open Monday in the U.S., overall sentiment may be depressed further in the wake of a mass shooting in Orlando, Florida that killed at least 50 people.