Why It Matters

Don't panic over Brexit

It would be a huge step for the British, of course, but Britain leaving the European Union (EU) may not have a huge impact on Singapore and the region, according to some economists.

There are warnings that Britain voting to leave the EU in June could raise questions on the stability of the European Monetary Union and sour investors' mood.

But the Singapore Business Federation (SBF) says "Brexit" is unlikely to hurt firms here that much, especially in the long term, and both countries have enjoyed fruitful bilateral relations for many years.

Singapore companies in Britain are "largely service firms that typically do not rely on their presence there to service their European operations", says SBF chief executive Ho Meng Kit. About 55 per cent of Singapore's investment in the EU was in Britain.

But in the weeks leading up to the vote, volatility is likely to rise as the "stay" and "leave" camps try to sway public opinion. Brexit fears sent the pound falling to 21/2-year lows against the Singapore dollar yesterday.

Mr Ho warns that "the departure from the bloc of one of its largest member states would severely destabilise the EU" at a time when it is facing a struggle over migrant issues. A weaker EU will have more impact on Singapore and Asia as it is one of their biggest investment and trading partners, and "the ratification of our EU-Singapore FTA (free trade agreement) might be further delayed".

Brexit fears have thrown up questions on whether London's competitiveness as an international financial hub will be damaged.

Barclays Capital economist Leong Wai Ho says there are perceptions this could be bad for asset prices in Britain but, over the long term, these fears may prove unfounded. "The EU is not a big buyer of UK assets. The Chinese, Russians and the Middle East are. A stronger driver for property prices in the UK is the vitality of the services economy and London as an international financial centre," he says.

Sterling will likely see more volatility in the coming days, but interest will then turn to questions on whether the "leave" faction can offer a compelling vision of life outside the EU.

A version of this article appeared in the print edition of The Straits Times on February 23, 2016, with the headline 'Don't panic over Brexit'. Print Edition | Subscribe