Contagion Fear Stalks Eurozone

Falling Pound

Falling Pound

With the decision by the British electorate to break free of their European straightjacket how is Asia going to be affected, and will the U.K. now be the first of many to leave the cosy Brussels based club.

U.K. Real Estate in particular London property is a widely held asset class across Asia, with Hong Kong, Malaysian and Singaporean investors particularly keen owners, many with multiple homes. Asian Institutions and Sovereign Wealth Funds are also deeply invested in British property assets.

According to property experts a short-term fall in house prices and sales could follow the decision to leave the EU, although sterling’s slump could also lead to a «Brexit bubble» in the most expensive pockets of the market.

Capital values could come under pressure however so what does that mean for the Asian banks who may be exposed via their clients investments?

Swings and Roundabouts

In a note today Richard Jerram, Chief Economist, Bank of Singapore, sees the U.K. facing a short-term recession, but a plunge in the currency will cushion the blow. 

The U.K. is also a favoured education location for Asian parents so a drop in the value of Sterling could trim the fees devoted Asian parents shell out.

Golden Lining

For Asian investors holding Gold the precious metal surged as much as 8 percent in Asian trade while crude oil futures plunged more than 6 percent, as fears gripped global markets after the U.K. break was officially confirmed.

European Dominoes to Fall?

Bank of Singapore's Jerram also says the most obvious implication of Brexit is that it casts doubt on the broader European project. Other countries will face pressure to follow the U.K. vote, although exit would be much more complicated for those that are members of the Eurozone. The response might not be immediate, but if the U.K. fares well outside the EU then others might be tempted to follow.

Already new names have been coined for what could follow Brexit as other European states consider their own destiny's such as Italeave, Czechout, Byegium and Departugal.

 

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