SINGAPORE: Christmas came early to Asian markets on Friday (Dec 13) as equities surged on hopes of an orderly Brexit after a landslide election victory for British Prime Minister Boris Johnson and signs of a last-ditch trade deal between the United States and China.
The impact of the election result was also felt in currency markets, with the pound surging 1.67 per cent to S$1.8126 against the Singapore dollar as of 4.20pm on Friday after closing at S$1.7829 the previous day, according to Bloomberg data.
It had earlier jumped to S$1.8293, the highest since it touched S$1.8315 on Oct 11, 2018.
In all, sterling has strengthened 4.8 per cent against the Singapore dollar this year.
"The market is getting two Christmas presents early," said Tai Hui at JP Morgan Asset Management.
The positive news for markets sent equities surging in Asia.
Tokyo soared 2.6 per cent, Hong Kong piled on 2.6 per cent, Shanghai clocked up 1.8 per cent, Seoul surged 1.5 per cent and Sydney rose 0.5 per cent. There were also big gains in Mumbai, Singapore, Taipei, Manila and Jakarta.
"The potential for a smooth Brexit removes some of the downside risk for the UK economy, and this should be positive for both business and consumer confidence," said Guy Foster, Head of Research, wealth manager Brewin Dolphin.
Chastened by three-and-a-half years of political instability in Britain, investors seized on Johnson's election win, which clears the way for Britain to finally leave the European Union.
Johnson should now be able to secure parliamentary approval for the withdrawal deal he struck with the European Union in October so that Brexit happens on Jan. 31.
Britain then goes into a transition period until the end of 2020, time enough, says Johnson, to negotiate a new relationship with the EU, including on trade.
"Just as Boris Johnson was desperately seeking his majority, this result would give the markets their ultimate wish: clarity," said Dean Turner, an economist at UBS Wealth Management.
Against the US dollar, the pound rocketed 2.5 per cent higher to US$1.3516 - its highest since May 2018 - in the immediate aftermath of the exit polls. It later settled at US$1.3472, up 2.3 per cent on the day.
Against the euro, sterling rose as high as 82.80 pence, up more than 2 per cent on the day, leaving the pound at levels last seen in July 2016, shortly after the Brexit referendum that hammered the currency. The pound traded around 76 pence per euro before the June 2016 Brexit vote.
"Markets will start focusing on the longer-term outlook of what a future trade relationship with the EU will look like and the pound's gains will be capped in the US$1.35 to US$1.37 area," said Joel Kruger, a currency strategist at LMAX Exchange.