World
Brexit: Expect waves of contagion on Asia
Britain's decision to opt out of the European Union-EU (Brexit) has rattled markets across the world. With the Brexit result only a few hours old and the situation extremely fluid it is extremely difficult to forecast the economic and financial impact on Asia, however Nomura feels financial, confidence and psychology channels are likely to be more important than trade linkages during these times.
 
"We should not underestimate the global contagion of the Brexit outcome," Nomura said, adding, "At first glance it would seem that the financial and economic impact of this result should be largely confined to the UK, given that its economic size is quite small at less than 4% of world gross domestic product (GDP) and world imports in 2015. However, we believe that this is too simplistic of a view and that the impact of the Brexit will be far reaching and long lasting."
 
According to Nomura report, there are two reasons for this. One, it expects non-trivial spill over to the euro area economy and financial markets and second, Brexit could further inflame anti-EU sentiments. 
 
It says, "While the value of merchandise exports from the rest of the EU to the UK is only 3% of the rest of the EU’s GDP, the UK’s position as a global financial hub – UK financial sector assets account for more than eight times of its GDP – leaves the rest of the EU much more exposed to the UK in terms of financial and investment linkages, in part reflecting the UK’s relatively liberalised domestic market and its strong legal framework and institutions. For example, one-third of UK's financial and insurance services exports are to the EU. Also more than half of the UK banking sector's cross-border lending is directed towards the EU, while almost half of the foreign direct investment (FDI) received by the UK comes from the EU."
 
 
In addition, it says, Brexit could further inflame anti-EU sentiment in other EU member states, heightening fears of more countries opting to leave the union. "It is largely due to these non-trade-related channels that we expect a reduction in euro area GDP growth by 0.5 percentage points (pp) and a weaker EUR/USD.3 While UK share of global GDP is less than 4%, the rest of EU’s share is 18%, so once second-round effects on Europe are taken into account, the global impact is no longer trivial," it added.
 
Talking about the Brexit impact on India, Nomura says, as Indian economy is largely driven by domestic demand, the economic impact (of a Brexit) should be small relative to other open economies in Asia. “Still, India is not immune, as it has strong trade linkages with the EU and is susceptible to a loss of business confidence and a potential tightening of financial conditions. In our view, any adverse impact could be partly cushioned by upcoming domestic impulses to growth such as good monsoons, pay commission hikes and a likely easing of policies (both monetary and fiscal) but, nonetheless, we expect the growth recovery to slow.”
 
Nomura thinks a globally coordinated central bank response to a global financial market meltdown is quite likely, such as liquidity support through forex (FX) swap arrangements and possible FX intervention. But with policy credibility at such a low it is unclear how successful these emergency measures would ultimately be when there is extreme market risk aversion, it added.
 
On the Brexit result, Nomura says it has tentatively lowered its aggregate 2016 GDP growth forecast for Asia ex-Japan to 5.6% from 5.9%. The largest percentage point (pp) downgrades are for Hong Kong (1.0pp) and Singapore (0.7pp), followed by Taiwan (0.6pp), Thailand (0.5pp) and Malaysia (0.4pp). At the other end of the spectrum, Nomura says it has lowered its 2016 GDP growth forecast by only 0.2pp for Australia, China, Indonesia and the Philippines.
 
 
Nomura also expects significantly more monetary policy easing in Asia. It says, dovish central banks, a weak growth outlook and a dovish Fed are bullish for most Asia rates. 
 
"Between now and year-end, we expect the Reserve Bank of India (RBI) to cut by 25 basis points (bp) from no cut previously, Korea by 50bp (25bp previously), Indonesia by 50bp (25bp), Taiwan by 50bp (37.5bp), Thailand by 50bp (50bp), Malaysia by 25bp (no cut previously). For China we have increased the number of RRR cuts by year-end from two to three, in addition to one interest rate cut. The only Asian central bank that we expect to keep rate on hold is in the Philippines. We now expect the Monetary Authority of Singapore to re-centre the mid-point of the S$NEER policy band lower at, or before, its October policy meeting," it added.
 
Talking about the economic implication on UK, the report says, the impact (of Brexit) is likely to be prolonged rather than short term. It said, "The uncertainty over the future of the UK means investors can be expected to demand a higher risk premium for holding UK assets, which coupled with the need to finance a 7%-of-GDP current account deficit, should result in a large – and persistent – depreciation of pound." 
 
"Beyond the trade channel, once financial, confidence and psychology channels are taken into account, we caution not to underestimate the depth and reach of financial market contagion to Asia," it concluded.  
 

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COMMENTS

Ramesh Poapt

11 months ago

well said!Now Rexit will be more painful.............

Brexit rattles markets, pound stumbles 11%, Cameron resigns as Britain exits EU
Britain's decision to opt out of the European Union-EU (Brexit) rattled Indian financial markets on Friday, shaving some over 1,000 points, or 4%, off Sensex, a key equities index, while pulling the rupee below the $68 mark. The British pound dropped 11% to its lowest level in over three decades as the market awoke to the shock of Brexit. The euro, seen to be vulnerable if Britain voted to leave the EU, was also down 3.2% against the US dollar, which also rose strongly against emerging market currencies. A stunning slide in sterling at 3.40am (London) saw the currency plummet below $1.40, and 20 minutes later, it had breached $1.35 to levels last seen in 1985. An hour later, the pound touched a new low at $1.3224. Following the poll results, British Prime Minister David Cameron announced his desire to resign from the post.
 
The BSE Sensex, which had closed on Thursday at 27,002, opened the next morning at 26,367. At noon, it had drifted sharply and was ruling at 26,002 points, down by 999 points, or 3.7%. At one point, it had lost nearly 1,050 points.
 
Each of the 30 stocks that go into the Sensex basket were in the red led by Tata Motors, which was down as much as 11.53% and Tata Steel, lower by 9.15%, due to their large presence in Europe in general and Britain in particular.
 
In the pre-open trades, the 30-scrip index was down as much as 634.74-points or 2.35%. An indication came from the SGX Nifty, which trades on the Singapore exchange and ahead of the opening bell in India, was down over 2.75%.
 
At the National Stock Exchange (NSE), where the 50-scrip Nifty had closed at 8,270 points, the opening bell was at 8,029. Thereafter, the index was ruling below the 8,000-points mark at 7,955 points, down 315 points, or 3.81%.
 
The rupee dived over 1.4% to 68.21 per US dollar, while the British pound -- that had rallied to nearly $1.5 in early trades -- fell sharply to its lowest level since 1985 at $1.35.
 
Both Finance Minister Arun Jaitley and Reserve Bank of India (RBI) Governor Dr Raghuram Rajan sought to calm the markets and assured there was no cause for panic as India's economic fundamentals remained strong and along with other macro indicators.
 
RBI's Rajan said investors need not panic over the rupee. "We are comfortable on foreign exchange reserves. We can use it when necessary," he added. "We also expect to see lesser swings in bond markets compared to peers."
 
Commenting on the Brexit, Arundhati Bhattacharya, Chairman of State Bank of India (SBI), the country's largest lender, said, "Uncertainty of any sort results in volatility and Brexit will be no exception. As risk aversion sets in, there would be a decline in financial markets and India would see this impact along with other nations. However as trade strategies are reworked there could be potential advantages in the form of better market access for India to EU and UK."
 
On Thursday, sensing that the chances of Britain remaining in the EU were higher, the investor mood had lifted the Sensex by 236.57 points or 0.88% while the wider 51-scrip Nifty edged up by 66.75 points or 0.81%.
 
This, despite foreign funds being net sellers of Indian equities on Thursday valued of Rs31.86 crore, as per data with the National Securities Depository Ltd (NSDL).
 
World reacts as Britain votes to leave EU
 
British PM Cameron, said he fought the referendum on the EU with "head and heart" and was proud of what he had done. "I formed a coalition, delivered a referendum in Scotland and gave the public a referendum on Europe. I have fought the referendum with head and heart. I always thought that one has to confront big decisions and not duck them," Cameron said as he announced his decision to step down as the Prime Minister.
 
 
International reactions poured in on Friday for the dramatic decision by British voters to leave the EU in a historic referendum.
 
"We respect the result. Now is the time for us to behave seriously and responsibly. (Prime Minister) David Cameron has his responsibilities for his country, we have our responsibilities for the future of the EU. You can see what is happening to sterling on the markets. I don't want the same thing to happen to the euro," European Parliament President Martin Schulz said early Friday morning after the results were announced.
 
Former First Minister and Scottish National party leader Alex Salmond said he believes Scotland must now stage a second independence referendum before the UKA’s exit from the EU is effected within the next two years.
 
Dutch Freedom Party leader Geert Wilders hailed the decision and said that it was the time for a referendum in the Netherlands.
 
"Hurrah for the British! Now it is our turn. Time for a Dutch referendum!" he tweeted
 
Marine Le Pen, the leader of France’s far-right Front National party, has welcomed the result. She said she also wants a similar referendum in France.
 
"From #Brexit to #Frexit: It's now time to import democracy to our country. The French must have the right to choose!" she leader tweeted.
 
Manfred Weber, leader of the largest group in the European Parliament, the EPP, said: "Exit negotiations should be concluded within 2 years at max. There cannot be any special treatment. Leave means leave."
 
German Foreign Minister Frank-Walter Steinmeier deemed it as a sad day for Britain and for the EU.
 
The head of Germany's Foreign Trade Association, Anton Boerner, said: "That is a catastrophic result for Britain and also for Europe and Germany, especially the German economy. It is disturbing that the oldest democracy in the world turns its back on us."
 
Gerard Araud, the French ambassador in Washington, tweeted: "Now to the other member states to save the EU from unravelling which excludes business as usual, especially in Brussels. Reform or die!"
 
The 'Leave' campaign won by 52% to 48% with England and Wales voting strongly for Brexit, while London, Scotland and Northern Ireland backed staying in the EU.
 
The referendum was held all across the country on Thursday. The turnout was 71.8% - with more than 30 million people voting.
 
Twitterati reaction on #Brexit
 
 
 
 
 
 

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COMMENTS

Ramesh Poapt

11 months ago

amazing n shocking too, to know that senior citizens lead to Brexit! Analysis in the matter pl ML.

B. Yerram Raju

11 months ago

Very informative and analytical article at the right moment.

Aditya G

11 months ago

This is an interesting event, for many reasons.

First, UK has no idea what's going to happen in future. This gives more ammo to SNP to break free from UK and join EU. Without Scottish oil money, Great Britain and Wales will be bust; it has only London to keep afloat. Also, UK will now have to spend a lot more to protect its borders, previously outsourced to Turkey (which ironically not part of EU), Greece and Germany. This is going to be a very very very very very difficult tasks. UK is no America.

Second, EU required reforms way before Brexit happened. This is just a wake up call, or an inflection point if you will. Some smart guys in ECB and EU are now talking of reforms. Yeah. Right.

It's going to be a long sideways market (or a good chance of prolonged stagnation/recession), at least for European markets. Some FIIs may even come here. I don't know. Gold? Yen? Even real estate? They're all looking good now.

Other countries may follow UK, but they are smaller and have less economic clout. They can't afford to leave EU. There will be lots of politics and infighting between right-wing parties and the mainstream. It will be theatre, literally. I can't wait for the circus to start.

Times are a'changing!

SuchindranathAiyerS

11 months ago

This is just the last straw that broke the Cameron's back:

Brexit will not disturb trajectories of world events beyond a hiccup and a ripple or two.



Somebody who runs the stochastic processes in Langley must have finally briefed Obama with the foundation of the US-UK special relationship. It was Bush crony Blair who sank the commonwealth by defining the United Kingdom's aspiration. The UK hoped and prayed, with cap in hand, to be a bridge between the US and Europe. This paid rich dividends by taking NATO into committing war crimes in Iraq at the behest of the White House's Sunni Pay Masters. This also established that the UK was a willing slave. The UK was the convenient handle with which to swing the European pan, A tail with which to wag the European dog and which could be treated like a Yazidi. Remember how the US abandoned the UK over the Falklands? If the UK exits Europe, it would reduce the time required for the rest of Europe to integrate with Russia which, bereft of Totalitarian Communism, is Europe's natural partner rather than an entirely selfish and uncultured United States that imposes laws and Islam on others that it will never impose on itself.



The Pound will not crash. U.K. will be temporarily "ostracized" by both the US and EU. Britain will work harder on its Financial Services and Financial Safe Haven status which is the source of most of its "invisible" earnings which is the major portion of its exports. In this process, UK will move towards an equidistant locus from both East and West. But it will not be able to revive the moribund Commonwealth in any way other than as a safe haven for its corrupt tyrants. It will become a third rate military power depending on its insularity for security from all but Islam which will dominate its cultural transformation via the Islamic portions of the Commonwealth that will continue to use Britain as Britain seeks, futilely, to use them. This will render Britain's far flung territories such as The Falklands (Malvinas) more vulnerable to subsidence into their original main land parents.



In any case, the only thing that unites Britain and the EU is that they are both ruledby political correctness, Islamophilia, and the angst of small town shopkeepers, small farmers, and lower middle class housewives without any conception of Geo Politics, Military necessity, History, or Economics. These churn out the plethora of strangulating and suffocating laws that are driven like any vice by compulsion rather than necessity. Which is what separates them as notions of political correctness obtrude into notions of sovereignty as well.

Why some of us should never follow our dreams (The Funny Side)
The car window winds down and new age author Paolo Coelho asks for directions to the expressway. "Here, have this map," I reply, handing him a folded piece of paper with "Follow Your Dream" on it.
 
Okay, that hasn't happened yet, but scientists say we live in an infinite multiverse which means that it is statistically guaranteed to happen somewhere at some point.
 
It worries me that so many young writers and filmmakers I meet think "Follow Your Dream" is the most profound idea ever. My question is: Which dream? The one where I'm chained naked to Goofy at a Disneyland parade? The one where Kylo Ren is fondling his light sabre and looking at me in a creepy manner? Or one of the disturbing ones?
 
A colleague offered advice. "I think they mean follow your daydream, not the weird dreams you have at night, thanks to your strange eating habits," he said, as if other people didn't eat late-night basins of mac 'n' cheese with jalapeno chillis.
 
Following my daydreams makes it worse.How do I arrange for Taylor Swift and Emma Watson to fight over me? Or have a group of novitiate nuns chase me with tickling sticks? The phrase needs a disclaimer: "Follow your dream unless it's kind of obvious that you shouldn't."
 
Ambition can be a bad thing. In my crime reporter days, I recall a one-legged petty thief in Indonesia who decided to follow his dream by graduating to bag-snatching. He was quickly caught by police who said he'd made a poor career choice.
 
It strikes me that what many people really mean by the phrase is that they want to be famous. To achieve this, forget your dream and just have a startlingly original idea. Here's evidence for that from the news media.
 
Ketan Kumar, 24, stole a train for his girlfriend.He thought she would be impressed with a gift, the newspapers reported. She wasn't, and nor were the police. Ketan, buddy, you need to think about how girls work. Big, ugly steaming lump of metal? Perfect for guys. For girls, think romance and fancy dinners.
 
Ketan did get into the press but ideally one should find an idea that is eyebrow-raising enough to get media attention without getting you locked up.
 
A good example is the pair of student scientists in Indonesia who created a dung-flavored air freshener. They collected cow poop, fermented it for several days to maximize the, er, fragrance, and then found a way to put it into a handy spray-top container. The result was instant news media fame. Personally, cow poop is not my top choice for house fragrances, but others disagree.
 
Karuna Menon, a reader with Indian and Malaysian roots, remarked: "The smell of cow dung reminds me of summer vacations, playing with cousins, gulmohar flowers, and reading novels in the court yard under the shade of a mango tree."
 
It takes all sorts, Karuna. The comments put me in the mood for a relaxing daydreamy doze. I close my eyes and Taylor and Emma approach, looking daggers at each other and growling.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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