Jun 27, 2016

    Brexit fallout will dent confidence

    THE questions over Britain's future in the wake of Friday's shock Brexit outcome will likely continue to shake global financial markets this week, say analysts.

    "The next question traders will be asking is what will happen (this) week. More broadly, I expect the European Union (EU) to face political and economic contagion risks," said IG market strategist Bernard Aw.

    "Growing perception that we could see unbridled contagion spreading throughout the EU will hit the European economies hard, as well as the euro and European equities. This means that risk-off sentiments would likely dominate markets," he added.

    About US$3 trillion (S$4.1 trillion) was wiped off markets across the world as a result while the pound crashed to its lowest in more than 30 years.

    Last Friday saw London's Footsie slump as much as 8.38 per cent in trading, its worst one-day fall since the 2008 financial crisis. Tokyo shares were ravaged, with the Nikkei 225 plunging 7.92 per cent.

    On Wall Street, the Dow Jones Industrial Average lost 3.39 per cent.

    At home, the Straits Times Index sank 58.46 points or 2.09 per cent to 2,735.39 - down 28.03 points or 1.01 per cent for the week. Companies with exposure to Britain, such as City Developments, CapitaLand and ComfortDelGro, bore the brunt of the selling.

    Andrew Gillan, head of Asia ex-Japan equities at Henderson Global Investors which manages more than US$133.3 billion in assets worldwide, believes Asian markets will head lower this week, "simply due to the surprise and uncertainty ahead".

    However, he noted that within Asia, Singapore remains a "relatively defensive equity market" given its balance sheet strength, a fairly stable currency historically and decent dividend yields - which means investors should not write off all companies' prospects.

    "The direct impact of Brexit to Singapore companies is limited and it affects sentiment much more," he said, noting that the Chinese economy, regional growth and the credit cycle, on the other hand, are more important drivers to the country's corporate fundamentals.

    Traders will also look out for the release of China's industrial profits - out today - and manufacturing figures due on Friday.

    Japan is scheduled to publish a series of key data through the week, including retail trade, consumer price index and the Tankan reports, starting on Wednesday.

    At home, Singapore is due to release quarterly numbers on home prices on Friday.