The general view among economists and analysts of the direct effect on Asia of the UK’s exit from the EU is that it would not be impactful because of limited bilateral trade and investment linkages.
As Asia relies less on trade with the UK, the region is likely to suffer only a small direct impact because of Brexit, said Manulife Asset Management’s Senior Asia Strategist Geoff Lewis, in the company’s Monthly Macro View, which also wrote that Asian economies have limited dependence on exports to the UK, which is not a major trading partner for the region.
“Since the UK economy is not systemically important to Asia, we believe the region will prove well insulated from the Brexit economic fallout. London-based Capital Economics, for example, estimate that Brexit would only cause a GDP drop of 0.2% across Asia, even assuming a large 25% contraction in UK import demand. Exports to the UK in value-added terms account for only about 0.9% on average of an Asian country’s GDP,” he said.
No lasting damage
Likewise, Mr Victor Mills, Chief Executive, Singapore International Chamber of Commerce, said to us: “I do not believe that the global or local banking and insurance sectors will suffer any lasting damage. Rather, it is the City of London’s current pre-eminent position for banking and insurance that could be undermined by the terms of the divorce.”
Ms Woo Shea Leen, Insurance Leader, PwC Singapore told us that there will likely be continued uncertainty for insurers around business strategy, direction and strategic focus. “Insurers should consider undertaking economic analysis and stress test their business plans,” she said.
No negative rating action for Asian insurers
Rating agency, A.M Best’s Managing Director of Analytics, Mr Moungmo Lee said in The Best’s Asia-Pacific Weekly: “As the investment market shows instability, insurance companies’ invested assets will show higher volatility, but the impact will be limited and will not trigger a negative rating action to Asian insurers.
“Asian insurers having a European presence might need to consider having an additional office as although London’s status amongst Asian insurers as an entry point to expand into the rest of Europe will not change, its attractiveness will surely decrease.”
For Aviva Singapore, its spokesperson told Asia Insurance Review that it is optimistic. “At Aviva Singapore, we do not anticipate that there will be any significant impact on businesses in Singapore, as we have conducted extensive analysis of the possible implications of the vote to leave the EU and considered that it will have no significant operational impact on the company. We will continue to monitor the technical implications of the vote to leave, which will only be resolved after several years of negotiating a new relationship between the UK and the EU,” its spokesperson said.