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How Does The APAC Region Feel After The UK Referendum?

APAC to rethink its strategy towards the EU and the UK as the outcome hits the region’s financial sector

28Jun

The EU referendum results caused a wave of strong emotions globally. The consequences of it hit business and trading performances in almost every country. Equity markets were the first to suffer, with $2.5 trillion wiped off equities globally, $582 billion of which came from Asia, according to data compiled by Bloomberg. Before the referendum, the bookmakers' odds suggested that chances of the UK leaving the EU bloc were less than one in four, causing many investors to put wagers on riskier assets which have since plummeted. The outcome has also affected South Korea, Japan, Australia and Hong Kong.

However,the fact that the EU markets may fall into uncertainty creates medium term opportunities for Asia. ‘It’s very much a European issue. For us in Asia it’s an opportunity to look around for things you want to buy,’says Joshua Crabb, Hong Kong-based head of Asian equities at a unit of Old Mutual. In Shanghai, shares are less affected due to local investors dominating trading, according to Bloomberg.

In other sectors, even though the UK is not China's top trading partner, there is a risk to China's export performance, which may slow in the future. Over the last few years, China has been attracted to London and intensely invested in partnerships which resulted in deals worth $57 billion, announced by the Chinese president Xi Jinping during his last visit to London. One of the biggest purchases was a 33.5% stake in Britain's Hinkley Point nuclear power plant bought by China's General Nuclear Power Corporation in a deal worth $9 billion. Brexit means that China may need to rethink its strategic access to Europe through Britain though.

China is attempting to avoid the overall panic and practicing the policy of not intervening other countries' decisions. According to TIME, on the day of the results announcement, China's state media was busy showing its president's visits to Serbia, Poland, and Uzbekistan but it didn’t help to stop rising concerns among traders. As for emerging Asian economies, Capital Economics Ltd noted that exports to Britain make up only 0.7% of their GDP and that most economies will survive even with a prolonged period of the financial stress.

The U.S and China may be seen as the two countries that mainly support the world’s growth, with the EU and the UK preparing for times of uncertainty. China's Finance Minister Lou Jiwei said the consequences of the UK leaving the EU bloc were unclear, but it would be felt for years to come. South Korean and Japanese leaders stated their countries are prepared to react to market volatility.

There have been a lot of question raised and concerns expressed, and it's hard to predict the behavior of markets in the medium term. Yet, everyone is waiting for countries to start negotiations in Brussels, to see if there is worse to come or there is still hope for a bright future.

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