Following the unexpected turn of events where the United Kingdom voted to leave the European Union by a vote of 52% against 48%, many of us have been left wondering about the possible implications the result could have on our daily lives as Malaysians.
Short Term Market Volatility
On the day of the vote itself, the FBM KLCI had fallen 22.66 points by the midday break.
Fortunately, the bourse managed to recover most of its losses by the end of the day. The FTSE and the Dow, on the other hand, were not as fortunate; with global markets losing about $2 trillion in value on Friday alone.
The sterling also suffered a record 1-day plunge to a 31-year low as money poured into safer investments.
In view of the uncertainties ahead and the capital outflow to safer investments such as gold, it is apparent that there will be volatility in the markets for the time being.
Fortunately for us in Malaysia, our financial markets have not been affected as badly as the UK markets, which saw Barclays and RBS stock losing its value so rapidly that it triggered automatic circuit breakers to suspend their stock on Monday morning (story here).
Short Term Volatility In The Ringgit
According to analysts, the ringgit and the rupiah would be the most vulnerable ASEAN currencies to the uncertainties caused by the Brexit vote as investors dump seemingly riskier investments in emerging markets and flock to safer ones.
True enough, the ringgit slumped as much as 1.8 percent to 4.166 per dollar, the lowest since June 2. However, it still rose against the weakening pound and was up 3.14% at 5.5205.
A Stronger Ringgit Against The Pound
However, in the longer term, the ringgit is likely to continue getting stronger against the pound as the UK starts its lengthy 2-year process in preparation of its exit from the EU. Coupled with the question of whether parliament would choose to go ahead with the process or simply choose to ignore the results of the referendum since it is not binding on them, would just add more uncertainty to the already volatile situation and cause the pound to weaken further.
Minimal Effects On The Malaysian Economy
According to Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias, “Asia exports less than 1% to Britain, while Malaysia’s exports and imports to Britain are roughly 1% of total trade”. Hence, the impact on Asian economies including Malaysia will likely be minimal, in terms of trade volume.
Since Malaysia’s trade with the UK does not make up a significant volume of our total trade, many experts are of the opinion that Brexit would have a minimal impact on the economic fundamentals of Malaysia, with any impact purely being on the financial markets as a result of global negative sentiments.
Losses For Existing Malaysian Investors In The UK
The bad news, however is that many of our institutional investors such as the Employees Provident Fund (EPF), Retirement Fund Inc (KWAP) and Armed Forces Fund Board (LTAT) are among the biggest investors in UK properties.
As a result, their portfolio sizes might be affected for the near to medium term, at least until the 2-year period is over. Let’s just hope that their other investments do well enough to support our yearly withdrawals as more of us retire while waiting for the UK market to recover from this slump.
New Investment Opportunities For Malaysians
On the bright side, the rapidly weakening pound presents a great opportunity for Malaysians with extra cash to invest in UK properties.
Taking the lead is YTL Corp, one of Malaysia’s largest conglomerates. Tan Sri Francis Yeoh, YTL’s managing director, said that “not since 2008 has there been an opportunity for it (YTL) to scout for assets at such attractive prices till now” he said in an interview.
The company has about 13.5 billion ringgit in cash that could be used to finance such endeavours.
If you happen to be one of those high net-worth individuals with some extra cash lying around, you too might want to give it a shot.
Cheaper Education Fees For Those Studying In The UK
For the common middle-class Malaysian like most of us, the greatest impact that Brexit would have on us is likely to be a good one, which comes in the form of cheaper tuition and education fees for our own, or our children’s tertiary studies.
Being a commonwealth country, a significant number of Malaysians choose to study in a UK university or a twinning or external program by a UK university each year. As the pound continues to weaken as a result of the uncertainties surrounding Brexit, that would likely translate into lower tuition and education costs.
Hence, for the majority of us, it is likely that we would not have too much to worry about. In fact, Brexit might even end up being a good thing for us in the long-run.
But as far as we know now, there is still plenty of uncertainty surrounding Brexit, and uncertain market conditions are likely to continue in the short term. Let’s just hope that this won’t serve as a trigger to a bigger global recession.
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