The trade impact could be ‘more than flesh wounds’

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Asia cannot escape the economic implications of Brexit, despite its limited trade and investment linkages to the UK.

In the immediate term, the volatility on global markets and currencies is the main concern, according to Wellian Wiranto, economist at OCBC Bank.

Following the announcement on Friday, the pound dropped by more than 10% in Asian trade, the Japanese yen soared against the hopes of Japan’s policy makers, and emerging market currencies plummeted as investors pulled out of risky assets.

But in the long term, many analysts agree that listed companies in Asia will be largely insulated from Brexit risks as most firms operate mainly from the Asia-Pacific region.

Wiranto said: “As a percentage of GDP, exports to the UK range from a low 2%-3% for economies such as Hong Kong and Vietnam to even lower 0.2%-1% for most of the rest, including Indonesia and Malaysia.”

Wiranto said the trade impact could be “more than flesh wounds”, however, if the European economies get affected materially by UK’s exit.

“Countries, including Indonesia, that are more domestically oriented and less tied to exports in general would be better placed to ride this potential secondary effect out, naturally. That is less so for Malaysia, whereby exports to EU account for 6%-8% of its GDP,” he said.

Munich Re chief economist Michael Menhart said Brexit could have a positive impact on Asia.

“London will lose influence as a financial centre to hubs such as Singapore or New York, and this will also affect insurers.”

He also said that the referendum decision is not likely to impact the insurance industry as heavily as other sectors.