Brexit to have 'more' impact on Malaysian financial markets - MIDF

by **Cals** Wed 22 Jun 2016, 01:01

Brexit to have 'more' impact on Malaysian financial markets - MIDF

By Chen Shaua Fui / theedgemarkets.com | June 21, 2016 : 12:53 PM MYT

KUALA LUMPUR (June 21): Anticipation on UK's possible European Union (EU) exit (Brexit) is seen to have a greater impact on Malaysian financial markets than the economy "due to negative sentiment", according to MIDF Amanah Investment Bank Bhd.

In a note today, MIDF said such sentiment had led to demand for currencies like the US dollar and yen, which were deemed investment havens in times of uncertainty.

"We opine that Brexit has marginal impact on the economic fundamentals of Malaysia but more on financial markets due to negative sentiment. In the wake of Brexit, investors have fled to safety i.e. Dollar, Yen and German bunds, causing yield to plummet.

"Worldwide investors were risk-off, which saw equity markets declined. Recall that (a) similar situation was observed during the Euro debt crisis in 2011 and potential Grexit last year," MIDF said.

However, MIDF said its baseline assumption was no Brexit in anticipation that the UK would vote to stay in the EU in a referendum this Thursday (June 23).

This followed the recent murder of Jo Cox, a UK politician, who supported the UK's EU membership. MIDF said the incident seemed to have swung the momentum of the anticipated vote towards the UK remaining in the EU.

"Before the tragedy took place, as we have covered last week, polls and betting odds seem to suggest Britons were more inclined to leave than remaining status quo.

"But even with Brexit, direct trade impact to Malaysia should be minimal. UK was once our fourth biggest trading partner behind Singapore, the United States, and South Korea in 1990. Over time, the bilateral trade significance had declined.

Year to date, the UK has only contributed 1.1% to the total trade and ranked 17th out of 240 trading partners," MIDF said