Brexit: What will a vote to leave the EU mean for the economy in Asia and Singapore

Members of the public hold flags at a stay in, pro EU Referendum event in Parliament Square, Central London, on June 19, 2016. PHOTO: EPA

With a referendum for Britain's future in the 28-member European Union around the corner, Asia-Pacific economists are bracing for a possible Brexit and its implications.

Here's a look at how a '"Leave" vote may pan out for the region:

Stock market losses

A pedestrian walks past an electronic indicator of the Tokyo stock market displayed in Tokyo, on June 16, 2016. PHOTO: AFP

Trillions of dollars have already been wiped off global stock markets in the run-up to the June 23 referendum and yields on government bonds in several countries have hit record lows.

In Asia Pacific, markets have been on a downward slide, with MSCI's broadest index of Asia-Pacific shares outside Japan down nearly 3 per cent for the week.

Tokyo's Nikkei index lost almost five per cent in the past week and Hong Kong's Hang Seng was down more than three per cent over the same period. Sydney fell almost three per cent.

A Brexit could possibly lead to another trillion dollar losses on the stock markets.

"The market is trying to price in Brexit and as a result there's a flight to safety," Mr Kelvin Tay, regional chief investment officer at UBS Group AG's wealth management business, said. "We're now moving into a crucial period before the vote itself. Things are just going to get volatile from here on."

Currencies could bear the brunt

Malaysian ringgit bank notes of different denominations. PHOTO: REUTERS

Emerging-market currencies such as the Malaysian ringgit, Indonesian rupiah and South Korean won will likely bear the brunt of selling, as investors will rush to safe-haven assets like the Japanese yen, to plonk their money.

"What we are seeing now is investors preparing for an exit vote and they don't want to be holding on to risky assets," ING's head of research for Asia Tim Condon said.

Businesses may need to find another European base

Offices are seen at dusk as St. Paul's cathedral and construction cranes are seen on the skyline in the London, Britain, on Nov 2, 2015. PHOTO: REUTERS

Although much would depend on Britain's relations with EU post-Brexit, it would make Britain a much less attractive destination for foreign investment.

For most of Asia, London is the best hub for European market, but a Brexit would force Asian companies to consider relocating to Paris, Luxembourg or Brussels, which would mean needing to acquire new language skills, besides adjusting to a new culture.

Ms Sammi Shen, executive director at Shanghai Nord Engine Asset Management Group, which only last year set up office in London, said an 'Leave' vote would question London's position as a platform for accessing Europe. "We would find a European partner or set up an office in Europe: that's our back-up plan," she said.

Here's a look at how a 'Leave' vote may pan out for Singapore:

Economic impact expected to be muted

Display of the Straits Times Index (STI) on ticker board in SGX Centre after the market closed on Aug 21, 2015. PHOTO: ST FILE

The Straits Times Index has spent most of last week in the red, with stocks marking losses for five days as Brexit weighed on prices and sentiment.

Analysts, however, believe that most listed companies are insulated from Brexit risks as most firms operate mainly from Asia Pacific region. Only a handful that operations in the United Kingdom. Analysts expect a knee-jerk reaction to a Brexit but overall the economic impact would remain muted.

A Brexit would "elevate financial market volatitlity and dampen business confidence in the short-term," OCBC economist Selena Ling said.

Disruption for the Sing dollar

Singapore dollar notes and coins. PHOTO: MYPAPER

The pound has been bounced around by opinion polls throughout the referendum campaign, dropping as much as 6.1 per cent year-to-date at the end of February.

A Brexit could mean significant disruption for the Singapore dollar, which has been trading around S$1.90 against the pound. The Monetary Authority of Singapore may have to make a decision about trading band for its currency.

Impact on exports to EU

Brexit could lead to a significant fall in Singapore's exports to EU. ST PHOTO: JAMIE KOH

Britain takes fully three-quarters of Singapore's investments in the EU with big companies like ComfortDelGro and Frasers having a presence in that country. Britain out of EU could lead to significant fall in Singapore's exports to EU, and Singapore businesses could suffer write-downs in value on their balance sheets.

However, Singapore's small and medium-sized enterprises (SMEs) looking to internationalise are undaunted by a potential Brexit. The Europe Enterprise Network (EEN), a collaboration between IE Singapore, the Singapore Manufacturing Federation and Intellectual Property Intermediary to give local firms access to partnership opportunities in Europe, has not seen a slowdown in interest. EEN has seen a 30 per cent jump in firms registering on the platform since last month's launch.

"Brexit's key impact on Singapore would depend on how it affects EU markets," said Ms Selena Ling, OCBC's head of treasury research and strategy.


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