What does the exit of Britain from the European Union (EU) mean for Asia? While the markets are in a tizzy, the region should come through this episode with only a few scratches.
Frederic Neumann, Co-Head of Asian Economic Research of Hong Kong and Shanghai Banking Corporation (HSBC), says the trade exposure to the United Kingdom (UK) is minimal for most Asian economies, and risks to direct bank financing from UK financial institutions appears manageable.
But he also says the impact of currency swings, in particular a stronger Yen, are harder to judge, tightening financial conditions for emerging markets in the region.
“The fragility of the West, economically as well as politically, is a reminder that Asia can’t count on an export rebound any time soon to lift ailing growth. Reforms are urgently needed to put local demand growth on a more sustainable path. Time to get to work,” Neumann says in a report released by HSBC Global Research on June 24, 2016.
He says the bottom line is that while one might not be able to tell from current market reaction, Asia is in “a reasonably strong position to withstand the latest tremors from Europe.”
“Broadly, the impact should prove manageable. But, at the margin, is should be the external trade and finance (or debt-) dependent economies that feel the biggest squeeze: Korea, Japan, Taiwan, Malaysia, Singapore, Hong Kong, and Thailand,” Neumann says.
“More insulated, at least in growth terms (if not in terms of FX volatility) should be India, Indonesia, and the Philippines. China and Vietnam are somewhere in between,” he concludes.