Warnings of Brexit 'market contagion' in Asia

29 June 2016

Brexit could cause ‘market contagion’ in Asia with GDPs being cut, an analysis has warned.

Financial holding company Nomura said Hong Kong and Singapore’s exposure to UK banks is likely to make them the worst hit in Asia by Britain's exit from Europe.

Nomura cut its predicted 2016 GDP growth forecast for Asia, excluding Japan and Australia, from 5.9% down to 5.6%.

The worst hit is Hong Kong (0.8% to -0.2%), followed by Singapore (1.8% to 1.1%), Malaysia (4.3% to %3.9%) and Thailand (2.7% to 2.2%).

“We caution not to underestimate the depth and reach of financial market contagion to Asia,” the company said.

As “financial hubs with large exposure to UK banks”, Nomura’s Asia research team said Hong Kong and Singapore were most vulnerable after Brexit vote because UK banks “may opt to reduce their exposure in Asia”. 

Nomura said speculation about a recession in Hong Kong is already mounting, caused by an “overvalued” Hong Kong dollar affecting tourism and retail sales, and a “fragile” property market.

“Hong Kong is a small, open economy and therefore vulnerable to a Brexit through both real and financial channels,” it said.

On the other hand, Nomura predicted China, Indonesia and the Philippines would be least affected.

The UK accounts for only 2.6% of Chinese exports and growth in the Philippines and Indonesia is largely domestically driven, meaning its financial and banking will be insulated from the shock of Brexit, the analysis said.

Although Nomura expects an international response from central banks will try provide enough liquidity to cushion financial markets, it warned it was “unclear how successful these emergency measures would ultimately be when there is extreme market risk aversion”.

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