Asia will “face serious contagion” effects of Brexit only in the unlikely event that the U.K. leaves the EU without a deal in place, which is known as a hard Brexit, Nomura’s Rob Subbaraman said in a note. He added that would likely drive the U.K. economy into recession and prompt a large depreciation of the pound.
“In terms of the trade channel, the UK is not a major export market for Asia. India has the largest exposure, followed by China,” he said. “On the other hand, reflecting the UK’s position as a global financial hub — UK financial sector assets account for over 8 (times) its GDP — the financial channel is significant.”
Subbaraman pointed out that British banks have relatively large claims on Asia, particularly in financial hubs such as Hong Kong and Singapore as well as in Malaysia and Taiwan.
“A global asset market sell-off could add to this financial channel, through negative wealth, confidence and liquidity effects,” he said, adding, “We believe only in the unlikely event of a hard Brexit would there be a high risk of UK banks retrenching from Asia and activating these financial channels.”
Overall, he said, it is likely the ongoing Brexit saga will remain “a sideshow for Asian economies.”
Elsewhere, the dollar index, which measures the greenback against a basket of its peers, last traded at 96.649 against a basket of its peers at 2:51 p.m. HK/SIN, declining from levels above 97.000 earlier in the week. The Japanese yen, considered a safe haven currency, traded at 111.56 to the dollar.
— CNBC’s Holly Ellyatt contributed to this report.