By Claire Heffron
Stock markets have been unpredictable and currencies have been moving since the news of the UK’s decision to leave the European Union (EU) broke. Governments have pledged to step in to shore up currencies if necessary and the positive spin they are putting on this event is helping to ease the fears of investors.
Many Asian companies have invested heavily in the UK and depend on trade within the EU so there will be losses, and there will be advantages as Great Britain moves away from the European political bloc. Trade agreements are going to have to be renegotiated and there lies the path of opportunity.
Head of Fixed Income Research at Bank of Singapore, Todd Schubert explains Brexit’s impact will be quiet, and will have little immediate impact on Singapore saying ,“The UK is I believe Singapore’s 22nd largest trading partner, and imports and exports from and to Britain account for only around 1-2% of the total. Where Brexit could have more of an impact on Singapore is fall-out from a global risk-off environment as a result of contagion.”
What can ASEAN learn?
Following the shock British vote last month Singapore businesses are focusing on emerging and immediate openings. Mr Ho Meng Kit, Chief Executive Officer of Singapore Business Federation maintains that in terms of strategy, “businesses are saying that it is better to head to ASEAN for immediate investment opportunities as it is a lot more certain.”
He stressed that for the ASEAN region to progress towards ever-stronger roots, local integration is vital. This means intra-government capability and infrastructure building are key to facilitate small- and medium-sized business initiatives.
Investors are now looking at immediate opportunities in Myanmar in education, training, property development, infrastructure and building. As part of these efforts, the Singapore Business Federation will be leading a team of 25 Myanmar-based companies in an exhibition on manpower training and skills development.
Vietnam is the other target market for investors interested in manufacturing. OCBC Bank’s Group CEO Samuel Tsien said, “An economically integrated ASEAN market with relaxed restrictions and an additional business-friendly regulatory atmosphere can generate additional trade and investment opportunities for everybody.”
Senior researcher of China Finance 40 Forum, Dr Guan Tao, commented on Asia’s future after Brexit saying, “Asia must rethink monetary policy co-operation in the region with the pound and the euro being beaten, Brexit may make it harder for companies in Asia to enter the UK and EU, however it makes it much cheaper for them to buy assets there.”
Long term impact?
The impending question is the longer-term impact of Brexit on trade and assets. Following the postponement of negotiations on a free trade agreement between the EU and ASEAN in 2009, individual countries have resorted to negotiations with the EU as a bloc. Singapore and Malaysia started these discussions in 2010, Vietnam in 2012, Thailand 2013, and the Philippines only last year.
Following Brexit, it is expected that the UK will deepen its search for trading partners abroad. Former UK Prime Minister David Cameron’s visit last year to Indonesia, Singapore, Vietnam, and Malaysia reflected the importance to diversify the UK economy beyond the EU.
More widely, experts say Brexit will probably generate incentives for the UK to develop trade and investment with ASEAN companies and partners and London can be expected to focus on regional economies such as Vietnam and Indonesia, as well as traditional partners Singapore and Malaysia. Finance analysts are looking at Singapore as one of the largest markets likely to benefit as asset managers are moving investment out of an anxious European market.
The move to Brexit signals that a major world economy and power is seeking to establish its new trade partnerships – something that could benefit both ASEAN and the rest of Asia.