Brexit’s impact on EM Asia: Not the UK but the EU that matters

HONG KONG – In what it describes as a ‘Black Swan’ event, French banking group Nataxis says the BREXIT decision in Emerging Asia will have most impact on Vietnam and India.

“From an economic growth perspective, demand from the UK will certainly weaken, especially considering a weaker sterling impact,” Nataxis says in a research note.

“Vietnam has the highest exposure, although most of the exports are essentials and inelastic, limiting decline. India comes second in terms of exposure.

“South Korea has the least exposure to the UK. Beyond the direct UK impact, many EM Asian countries have to consider the indirect consequence of a more subdued outlook regarding EU demand.

“Within Asia, China and Vietnam are most exposed to EU’s expected slower demand.

“To safeguard growth, EM Asian central banks will likely adopt a more dovish stance.

“In that regard, (we expect) the PBOC to deliver one more RRR cut for China and one more rate slash of 12.5bps by Taiwan.

“India may take advantage of (Reserve Bank Governor) Rajan leaving at the end of the summer and low global rates to deliver further cuts. In sum, with a more subdued global growth outlook, rates in EM Asia will likely go lower in the months ahead.” www.nataxis.com (ATI).