Australian shares advanced on Monday, shrugging off uncertainty over its inconclusive election outcome over the weekend, to join the continuing post-Brexit rally across Asia markets.

Australia's benchmark ASX 200 closed up 35.19 points, or 0.67 percent, at 5,281.80, paring earlier losses of 0.38 percent.

The heavily-weighted financials subindex closed down 0.12 percent, dragging on the benchmark index as major banking stocks fell, with Westpac shares closing down 1.02 percent.

Among other markets, Japan's closed up 93.32 points, or 0.6 percent, at 15,775.80, retracing earlier declines of 0.44 percent. Across the Korean Strait, the Kospi added 7.98 points, or 0.4 percent, to 1,995.30. In Hong Kong, the was up 1.37 percent in late afternoon trade.

Chinese mainland markets closed up, with the composite adding 55.66 points, or 1.9 percent, to 2,988.14 and the Shenzhen composite up by 30.96 points, or 1.57 percent, at 2,001.68.

The Australian federal election over the weekend failed to produce a clear winner, with no major parities gaining an outright majority, raising the prospect of prolonged political uncertainty.



That weighed on the country's major bank stocks, said Angus Nicholson, a market analyst at spreadbettor IG. He told CNBC by email that one concern was the possible formation of a minority government by the Labor party, which could then carry out a royal commission, or public inquiry, into the banking sector.

In addition, Nicholson said there were concerns over the new government's ability to carry out major structural reforms or repair the fiscal deficit amid a divided parliament. "This may result in more Reserve Bank of Australia rate cuts to support the economy, which could further cut into the banks interest margins," he added.

The Reserve Bank of Australia (RBA) is due to meet Tuesday, with analysts largely expecting the central bank to stand pat on rates.

But while bank shares stumbled, the broader market was higher.

Mark Jolley, an equity strategist at CCB International Securities, told CNBC's "Squawk Box" that funds look likely to continue to flow into the country despite unclear election outcome.

"The negative interest rate policy that we have in Japan and Europe is driving, I think, flow into emerging markets and into the peripheral developed markets like Australia," he said, noting that financial stocks in Japan and Europe were trading below crisis valuations.

"Australia doesn't look that great at the moment, emerging markets don't look that great, but relative to these places which are offering negative yield, they look quite good so I think you'll continue to see people buying that market for yield."

In the wake of the election outcome, the Aussie dropped as low as $0.7438, before recovering to around $0.7514 by 3:15 p.m.



Analysts also said uncertainty surrounding Brexit persisted despite the recent rally in global markets, as it "hang(s) in limbo," according to one analyst.

"The ball is on the U.K.'s court to invoke 'Article 50'," said Vishnu Varathan, a senior economist at Mizuho Bank. "But until a new government is installed, this trigger is unlikely to be pulled."

Varathan added it would be in the U.K.'s favor to start negotiating with the European Union before Article 50 is formally triggered. "Whereas, markets are hung up on likely policy stimulus, starting with a very dovish-sounding Bank of England to keep the music going," he said, adding it explained the rally in risk assets.

EU officials had previously said there would be no informal negotiations with the U.K. until the country invoked Article 50 of the Lisbon Treaty, which will officially begin the exit process from the trade bloc.

In other currency market action, the yen traded at 102.66 against the dollar, with the Japanese currency strengthening after the pair touched levels as high as 103.39 on Friday.

Kathy Lien, managing director for foreign exchange strategy at BK Asset Management, said in a Friday note that the dollar/yen pair's recovery from levels near 100 following the Brexit vote more than a week ago was "largely driven by the improvement in risk appetite, but investors are also growing worried that the Bank of Japan could strike soon."



"The market clearly thinks that 100 dollar/yen is the line in the sand for the Bank of Japan, but even at 102, we see policymakers growing very concerned about exchange rate volatility," Lien added.

Another headache for Japan, Lien said, was the performance of the yuan. "Chinese yuan devaluation puts pressure on the Japanese to do the same, but currency intervention rarely works for the central bank," she said. China is an important trading partner for Japan.



On Monday before market open, the People's Bank of China guided the yuan marginally higher by setting the midpoint rate at 6.6472 against the dollar, compared with Friday's fix at 6.6496. China's central bank lets the yuan spot rate rise or fall a maximum of 2 percent against the dollar, relative to the official fixing rate.

The traded at 6.6629 against the dollar as of 3:17 p.m. HK/SIN.