The S&P/ASX 200 was down 3.8 per cent late on Friday as it became clear the UK referendum on whether to leave the European Union had been won by the 'Leave' side.
Two of the three biggest declines in the Australian stock market on Friday afternoon were wealth management firms, with BT Investment Management (BTT) down 14.6 per cent and Henderson Group (HGG) down 12.4 per cent.
The UK futures market is pointing to falls of 8.4 per cent in British stock markets. The British pound was down 10 per cent against the US dollar on Friday afternoon, falling to its lowest level since 1985.
Commenting on the news, University of NSW Business School professor of economics Richard Holden said leaving the European Union would be "very bad" for Britain and "possibly catastrophic".
In the "radically interconnected financial world" we now live in, shocks such as Brexit propagate quickly and "savagely", Mr Holden said.
"The reason is that what investors believe about what other investors believe is the key to confidence. And these ‘higher-order’ beliefs can be disrupted by seemingly small events," he said.
Brexit, however, is certainly not a "small" event, he added.
"We can expect a run on [pound] sterling – it has fallen by the largest amount in history. Just look at the plummeting pound, a flight to safety that hammers the Aussie dollar, and causes stock markets to tank across the globe," Mr Holden said.
Perpetual's head of investment strategy, Matt Sherwood, noted that "all major groups in society, including the government, the corporate sector, the church and numerous community leaders were urging Britain to stay within the world’s largest trading bloc –but voters still said no by 52 per cent to 48 per cent".
Central banks will be the key to global financial stability in the immediate future, he said.
"The first job for the Bank of England is to provide massive amounts of market liquidity to ensure the UK banks are properly funded with the use of repurchase agreements and this funding needs to be done at ultra-cheap rates," Mr Sherwood said.
"This should help confirm that British banks are still viable and should prevent bank runs."
The Japanese Nikkei 225 was down 8 per cent on Friday afternoon (Australian time), with Bank of Japan (BOJ) governor Haruhiko Kuroda announcing the central bank is prepared to ensure market stability.
"The BOJ, in close co-operation with relevant domestic and foreign authorities, will continue to carefully monitor how the [British referendum] would affect global financial markets," Mr Kuroda said.
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