Bangkok--12 Jul--Aberdeen Asset Management
'In an historic vote, Britain has chosen a future outside the European Union (EU), confounding polls and betting agencies that had foreseen a narrow victory for 'Remain'. The reaction of global markets has been swift and dramatic, the pound falling 10 per cent to a 30-year low.
Prime Minister David Cameron has resigned. Meanwhile, protracted negotiations with the EU will begin shortly. The precise timing and terms of Britain's exit will cause even more unpredictability. Other countries unhappy with EU oversight may be emboldened to follow it.
Across Asia stock indices are down, led by Japan. Individual stocks (such as HSBC and Standard Chartered) that have close ties to the UK and/or derive a significant slice of revenue from the UK have also heavily sold off.
Liquidity has dried up in the region's foreign-currency credit markets because bids have disappeared. Local-currency bond markets appear to be in less turmoil but that could change. Other than the yen, Asian currencies (especially the ringgit and won) have weakened against the dollar as investors seek refuge in US Treasuries, Japanese government bonds and gold. Having said this, regional fixed income markets have been through worse within the past 24 months.
That is just today. But some perspective is called for. It will take years before the full implications of the vote play out.
For investors in Asia, already cautious given global headwinds, Brexit may just add to negative sentiment. But oversold markets tend to throw up the best opportunities. Many of the companies whose shares are being punished have no exposure to the UK. The likes of HSBC and Stanchart may be listed in the UK, but much of their business is in this region.
Most important of all, the reasons for investing in Asia have not changed. As we have been saying for some time, fundamentals are reasonably solid. Our concerns have been around slowing earnings growth. We still see a gradual improvement here, Brexit or not.'
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