With the “unexpected” Brexit vote brought renewed volatility to the global financial markets, Asia being no exception. In addition to equities, currencies in emerging Asia also took a hit because of a rising Us dollar.
However, despite the chaos in the immediate aftermath of the referendum, Brexit remains primarily a political rather than an economic crisis. Most emerging economies’ trade and investment are widely diversified, and their exposure to the UK is relatively limited compared to mature economies: exports to the United Kingdom account for less than 1 percent of emerging Asia’s GDP.
Brexit is not expected to shake up the economic fundamentals of emerging Asia and emerging market economies in the rest of 2016. However, volatility in global financial markets is likely to stay in the coming months and global investors’ risk aversion will continue. The ongoing financial market volatility will also complicate emerging markets’ central banks’ policy making, which can impact businesses through changes in interest rates and local currency value. and its secondary impact on emerging markets are harder to predict and may be substantial.
The potential impact will likely come from trade and foreign direct investment, and a possible reversal of globalisation. This could be particularly dangerous for export-driven Southeast Asian economies. Additionally, as reported by Oxford Analytica, UK development assistance funds for programs in Southeast Asia may be at risk. Nevertheless, Brexit is still in its initial stage, and the UK has two years to negotiate its way out of the European Union.
In summary, the sky won’t fall immediately, but uncertainty does lie ahead. What do you think?
