Brexit to have limited impact on Asia Pacific: Moody’s

SINGAPORE — The United Kingdom’s vote to leave the European Union will not have a “significant credit impact” on Singapore and other countries in the Asia Pacific region, said Moody’s Investors Service yesterday. However, the impact on financial flows into Asia from the UK and other European banks is uncertain, said the credit ratings agency. Hong Kong and Singapore, as international financial centres, could take a hit if financing flows from the UK and European banks slowed.

Moody’s conclusions were contained in its just-released report on the impact of Brexit on the Asia Pacific region, entitled Sovereigns — Brexit and Asia Pacific: Limited Direct Credit Impact; Some Sovereigns Exposed to Market Volatility.

The UK’s historic vote last month to quit the EU has roiled markets globally, pushed the pound to its lowest level since 1985, and led to the resignation of UK Prime Minister David Cameron.

In the days following the June 23 referendum, the three rating agencies ripped into the UK’s credit score, warning that its economic growth would suffer and how financial firms could look to other destinations for investment. On June 27, Standard & Poor’s stripped Britain of its last remaining top-notch credit rating, dropping it by two grades from “AAA” to “AA” and warning more downgrades could follow.

In its report yesterday, Moody’s projected the UK’s GDP growth to slow to 1.2 per cent in 2017, from 1.6 per cent this year, as uncertainty over future trade relations with the EU results in lower investment and potentially lower household consumption.

Although the lower GDP growth in the UK could dampen demand for products from the rest of the world, the impact on trade or GDP growth in the Asia Pacific is not large because of the region has minimal reliance on exports to the UK, said Moody’s.

Cambodia is judged as being the most reliant on exports to the UK, which made up 5.8 per cent of the South-east Asian nation’s GDP in 2015. In comparison, Singapore’s exports to the UK accounted for 1.1 per cent of its GDP in 2015, while Mongolia’s exposure was the least at 0.1 per cent, followed by Australia, Indonesia and the Philippines at 0.2 per cent.

However, over the coming months, announcements related to Brexit could trigger financial market volatility, which would affect sovereigns dependent on external financing, said Moody’s, citing Mongolia and Sri Lanka. It also cautioned that the impact on financial flows into Asia from the UK and other European banks is uncertain.

“Although not our baseline assumption, with a more challenging environment in their home markets, UK and European banks could reduce their activities abroad,” it said.

“As international financial centres, Hong Kong and to a lesser extent Singapore would be exposed if financing flows from the UK and European banks ebbed. However, there is a possibility that these centres could benefit if UK and European banks aimed to diversify their asset bases.”

Chancellor of the Exchequer George Osborne yesterday embarked on a two-week shuttle tour of the US, China and Singapore in a bid to persuade financiers to stick with the UK as it prepares to end its union with the world’s largest trading bloc. The trips come days after he met executives from banks including Goldman Sachs Group and JPMorgan Chase & Co to defend London’s status as a financial capital. He has also spoken with Chinese officials to maintain trade ties. With agencies