But after Brexit, ‘don’t count on an export rebound’ with the West soon, HSBC advises

ONE of the world’s largest banks with headquarters in the agitated United Kingdom (UK) maintained that Asia, particularly the Philippines, is in a reasonably strong position to withstand the latest tremors from Brexit.

“The trade exposure to the UK is minimal for most Asian economies, and risks to direct bank financing from UK financial institutions appears manageable,” said HSBC Asian Economic Research co-head Frederic Neumann in a statement.

The bank has identified the Philippines, India, and Indonesia as countries in Asia that are less vulnerable to shocks from the United Kingdom voters’ decision to leave the European Union. The Philippines’ export exposure to the UK represented 0.2 percent of its gross domestic product (GDP) in 2015, the lowest among Asian countries HSBC examined.

Hong Kong, Singapore, Thailand, and Vietnam have quite higher exposure, with exports to UK reaching above one percent of their GDP.

“Still, the fragility of the West, economically as well as politically, is a reminder that Asia can’t count on an export rebound any time soon to lift ailing growth,” the bank warned.

In terms of bank lending, Philippines also maintains a relatively low level of exposure to UK. HSBC data shows bank lending exposure of the Philippines to UK lending institutions stands at 2.5 percent.

“The vast majority of UK bank lending to Asia (especially Hong Kong, Singapore and Malaysia) is accounted for by institutions that finance their operations via local deposits, which sharply reduces the risk of any lending squeeze. Elsewhere, exposure is often in single digits when measured as a share of GDP,” said HSBC.

Currency swings

In Asia, most lenders in the region are Japanese and American banks based on BIS cross-border lending data.

“This brings us to our third channel: currency swings. Suppose the yen and US dollar appreciate sharply, and for a prolonged period of time, against other currencies: this could lead banks (and some portfolio investors for that matter) to decide to repatriate funds, tightening financial conditions in the process,” it added.

Generally, based on the export and bank lending exposure, Korea, Japan, Taiwan, Malaysia, Singapore, Hong Kong, and Thailand will feel the biggest squeeze.

Less vulnerable

In a statement, outgoing Department of Finance Secretary Cesar Purisima described the Philippines as “less vulnerable”, citing robust domestic consumption, but not immune.

Last June 24, Friday, the local equities shed 100.06 points or 1.29 percent to close at 7,629.72, the least affected among Asian bourses. Japan’s markets dropped by eight percent.

Here’s how much the other Asian markets shed on that day: Hong Kong, three percent; Singapore and Thailand, two percent; Indonesia, 1.5 percent; and China, 1.3 percent.

The Philippine peso depreciated to P46.950 from P46.535 on Thursday against the dollar.

Purisima said there are 200,000 Filipinos working in the UK, sending around $1.4 billion last year, accounting for about 5.6 percent of the total overseas Filipino workers’ remittances.
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