A trader from BGC Partners, a global brokerage company in London's Canary Wharf financial center, waits for European stock markets to open on Friday after Britain voted to leave the European Union in the EU Brexit referendum. [Photo/Agencies]

More pressure seen as investors failed to price in risk associated with result

The Chinese stock market held up better than other major markets on Friday as the unexpected British vote to leave the European Union - called Brexit - sent the global equities and currency markets into wild turbulence.

The benchmark Shanghai Composite Index declined 1.3 percent to close at 2,854.29 points. The startup ChiNext index in Shenzhen tumbled as much as 3.6 percent in the afternoon trading, but managed to recoup the loss by closing slightly down by 0.47 percent.

While the A shares were less affected than elsewhere, analysts said the unexpected Brexit result could spur a reversal in investors' risk appetite, prompting them to retreat from riskier assets and shift to safer assets such as gold, US treasuries and the Japanese yen.

"The Brexit has so far been the biggest 'black swan event' in the market," said Hong Hao, chief strategist at BOCOM International Co Ltd in Hong Kong.

"No one has faced this situation before. It is rational to take risk off the table," he said.

Hong said that the market will face short-term pressure from the Brexit as investors have failed to fully price in the risk associated with the result.

But some analysts said that the fallout of Britain leaving the EU would have limited impact on the Chinese market thanks to capital controls and limited financial linkage between China and the rest of the world.

"China is well placed to weather any post-Brexit selloff in the financial markets because China's capital account remains largely closed and the financial linkages between China and the rest of the world are fairly limited," research firm Capital Economics said in a report.

However, Tim Orchard, chief investment officer for Asia Pacific excluding Japan at Fidelity International, said that uncertainty is likely to prevail given the possibility of a domino effect happening to countries within Europe and the complex nature of the actual process of UK's withdrawal and its negotiations with the EU.

"From an Asia-Pacific perspective, a 'risk-off' environment doesn't bode well for emerging markets or perceived higher risk assets like Asian equities. However, the majority of our Asian holdings have a domestic focus; Asian corporates earn around 60 percent of revenue and profits from the actual Asian region," he said.

Analysts at UBS Group also expected continued volatilities in the equities markets, noting that it would be hard to see buyers step in the short term.