Business

Stocks fine, but watch sterling

Britain's triggering of Article 50 to leave EU unlikely to have impact on stock markets, say analysts

Britain's move to formally begin divorce proceedings with the European Union is unlikely to have much impact on Singapore or the wider Asian region.

The triggering of Article 50, used by a nation to exit the EU, is unlikely to cause even a stir in stock markets, as it has been long expected, analysts say.

However, the move could set off further slides in the British pound.

"When the Brexit process was started in February 2016, when then British Prime Minister David Cameron called for the referendum, the pound declined but stocks were muted," noted United Overseas Bank economist Lee Sue Ann.

A similar reaction followed the June 24 Brexit vote, a further sign that stocks in general will likely stay resilient, she noted.

Credit Suisse's Asia-Pacific chief investment officer, Mr John Woods, agreed.

"We do not foresee significant impact of triggering of Article 50 on Asian equities given the region's low trade and financial exposure to Britain," he said. "In a scenario of an organised and smooth negotiation process, Asian markets could benefit from reduced European political risk."

Investors will be eyeing the sterling more nervously, noted Mr Kelvin Tay, UBS Wealth Management's regional chief investment officer for the southern Asia-Pacific.

Should there be extreme pound volatility, it could result in the US dollar strengthening against all currencies, including the Singapore dollar, he noted, but this should be short-lived.

Singapore's economy is also unlikely to suffer any direct negative impact from the Brexit negotiations, he added.

"We expect growth in the British economy to slow down to 0.7 per cent next year, but Singapore's non-oil exports to Britain are only 0.7 per cent of total exports. Likewise, British exports to Singapore are non-meaningful."

Still, volatility is likely, said Ms Lee. Markets will be closely watching how the two parties bang out hot-button issues such as immigration, she said.

Bank of Singapore chief investment officer Johan Jooste said the process was expected to be a long-winded one. "Europe has little incentive to make the process smooth as it has a vested interest in keeping its remaining members in line."

Already, Schroders' senior European strategist Asad Zangana expects one pain point.

He noted that Mr Michel Barnier, the European Commission's chief Brexit negotiator, has indicated that Britain may be asked to pay up to 60 billion euros (S$91 billion) to cover the cost of existing EU commitments.

"A political fight over Britain's exit bill could jeopardise the chances of a favourable and friendly trade agreement at a later point. Despite Britain's desire to negotiate a trade deal in tandem with the divorce proceedings, there is no requirement for trade to be concluded under Article 50," he said.

BREXITunited kingdomAsia