Britain has voted to leave the European Union by a narrow margin with a turnout of over 70%. The Leave side won the referendum with 51.9% while Remain ended up with 48.1%
With that, the question remains – how does this impact Singapore?
Firstly, Stock Market Losses. We have already seen trillions of dollars wiped off the global stock markets in the run up to this day and yields on government bonds are at an all-time low. In the short term, we would continue to expect the world’s stocks, bonds and currencies to be highly volatile due to the uncertainty in the market. Many speculate that the long-term effects from Brexit may continue to be seen in the years to come, resulting in prolonged uncertainty. Emerging market currencies such as Malaysian Ringgit, Indonesian Rupiah and South Korean Won will likely decline as investors seek currencies like Yen which are regarded as safe-haven assets. “What we are seeing now is investors preparing for Brexit and they don’t want to be holding on to risky assets,” ING’s head of research for Asia Tim Condon said. Tom Manning, Chief Executive of F.I., Putnam Investment Management was quoted as saying “It may be a decision that is being made by folks locally to determine their future…but it has an impact on the rest of the world”
Secondly, Singapore’s trade with EU. Britain currently constitutes ¾ of Singapore’s investments in the EU and Brexit would result in significantly lower trade volumes with the Eurozone. The Free Trade Agreement concluded between EU and Singapore in 2014 means that any export and import between the two would be materially cheaper and subject to less restrictions and requirements. With Brexit, we can now expect UK to seek its own trade deals with countries in this region though it is far too early and challenging to ascertain whether Britain would have more or less bargaining power with Singapore, when it comes to imports and exports. In general, we may expect lower Asian exports as consumers in the UK will have lower spending power from the weaker sterling.
For individuals, the decline in sterling may encourage more foreigners to purchase properties in Britain. Galliard Homes, London’s largest private house builder, sent Business Insider a statement this morning saying that if a Brexit happens “the London economy will falter” and “the uncertainty it would cause will generate a value drop in the property market in a very short time”. For Singaporeans and Hong Kongers, Central London remains highly popular, despite recent appetite for properties outside of Central London. Separately, the decline in sterling is also good news for those intending to travel to the UK or for those who are funding children’s education there.
For companies, businesses will now need to decide if they want to continue investing in the UK, in light of the depreciation in sterling. The combined effect of lower exports and mediocre economic growth in the region, may also translate into lower growth, fewer jobs, and less promotions. Whilst it may be too early to predict, SMEs with international ambitions who are seeking partnership opportunities in Europe may also be impacted by Brexit.
What about Singapore Property?
With cooling measures in place since 2011 as the Singapore Government positions towards a soft landing, the key questions are:
– Is the Singapore Property market already out of Bubble Territory
– Is this the event that will swing sentiments and rekindle a crisis of confidence
– What will be the impact on leveraged assets such as property in Singapore
We invite your views.
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