Brexit impact: India hopeful of bilateral with UK; Japan Inc. re-examines overseas strategy

Photo by Dave Kellam via Flickr Creative Commons

The Union Jack and the European flag. Photo by Dave Kellam via Flickr

Brexit impact: India hopeful of bilateral with UK; Japan Inc. re-examines overseas strategy

28/06/16

By Naomi Canton

Below we have a round-up of the latest articles in the Asian media reacting to the news of the historic UK vote to leave the European Union on 23 June, 2016.

The Economic Times in India reports how Mahindra & Mahindra Group Chairman Anand Mahindra tweeted that Brexit was an “exaggerated tsunami alert” to the world which needs to “take a tranquiliser.” He said he viewed post-Brexit negotiations as an opportunity to design a more practical global template for common markets and travel access. Read the full article here.

The Economic Times also carries a story from the Press Trust of India saying that Britain is likely to explore direct bilateral agreements with India after it exits the EU. The article quotes The Development Bank of Singapore as issuing a statement saying: “This might provide an alternate route to India, in comparison to the tough and drawn-out negotiations on the EU-Free Trade Agreement, in turn providing a fillip to slowing India-UK trade.” Read the full article here.

In a separate interview with The Economic Times Christopher Wood, equity strategist at CLSA says: “The United Kingdom leaving the European Union is completely immaterial from the market fundamental point of view for emerging markets, including India.” He adds: “The future prospects look more negative for European stocks, than British.”

However Quartz India has a different perspective. Suneera Tandon writes that Brexit will do no favours to India’s US$9.3 billion export trade with the UK. Quartz quotes India’s Commerce and Industry minister Nirmala Sitharaman as saying that the “volatility of the currency is something which might have an immediate impact on our exporters.” Apart from the pound devaluation, the rupee has dropped to a four-year-low against the dollar, it states.

The article also argues that the UK’s exit from the EU could trigger the need for fresh talks between India and the EU on a free trade agreement (FTA). India has been negotiating an FTA with the EU since 2007. Read the full article here.

The Times of India carries a piece expressing concerns that after Britain exits the EU, Indian IT professionals will not be able to move freely between different European countries. Read the full article here.

The Indian Express, on the other hand, runs an editorial titled Brexit Opportunity. The article states that: “Brexit and the resultant convulsions in the EU may well impact India, both by further hurting its exports and also through lower fund flows in an overall ‘risk-on’ global investment environment. But it could also mean an extended period of low international oil prices and the US Federal Reserve putting off a decision to hike interest rates. These, along with a further widening of the differential between India’s growth vis-à-vis those of other economies, can actually turn out to be the unintended positive consequences of Brexit.” Read the full article here.

In an article titled How will Brexit impact China-UK deals? written for CNBC, Nyshka Chandran reports on the reactions from some business leaders in China. “A Brexit means more opportunities for Chinese companies,” Victor L.L. Chu, chairman and CEO of First Eastern Investment, who is also Deputy Chairman of the Asia House Board of Trustees, says in the article. “Chinese investment shouldn’t be feared, it should be welcomed. For example, we can help UK companies expand their reach in China,” he added.

“I don’t think a Brexit will have much impact on Chinese companies. We’ve seen more activity between China-Germany than the U.K., Western Europe collectively has been a big destination for outbound investment but the majority of that hasn’t been into the UK,” John B. Veihmeyer, chairman of KPMG International, says in the same article. Read the full article here.

Enoch Yiu wrote in The South China Morning Post that “Britain’s decision to exit the European Union may delay some share offerings and add to uncertainties lingering over Hong Kong, but it won’t hurt business at the London Metal Exchange, according to Hong Kong Exchanges and Clearing chairman Chow Chung-kong.”

It also reports HKEX chief executive Charles Li Xiaojia saying Brexit would not hurt its subsidiary The London Metal Exchange or the plans to link up the commodities markets between Hong Kong and London.

The article continues, stating that Chow said: “Britain will need two years of discussion with the EU on the terms of its leaving. This will bring in a lot of uncertainties to the investment markets worldwide including Hong Kong. Some companies may slow down their development plans or shares offering plans. These will have some impact to Hong Kong. However, I do not think the impact would be substantial,” it quotes Chow as saying. Read the full article here.

However Laura He writing in the same newspaper has a more negative stance. She warns that “Asian economies may slow down sharply and currencies may be pushed broadly lower as the Brexit contagion hits Asia, with Hong Kong likely to fall into a recession and the Chinese yuan to decline further, according to analysts.”

She quotes Rob Subbaraman, chief economist for Asia ex-Japan for Nomura, as stating: “Hong Kong and Singapore are both financial hubs and very exposed to UK banks.  They also have managed exchange rates, which give central banks less leeway in rate policy. There is also a risk that the HIBOR (Hong Kong Interbank Offered Rate) rates could start rising.”

The article also reports Santitarn Sathirathai, who leads a group of analysts at Credit Suisse, as saying in a research note that many Asian economies may take a hit from Brexit, resulting from the potential slowdown in the UK and euro area. “Hong Kong, Singapore, and Vietnam look most vulnerable, as they are the most export-oriented ones with limited policy space to respond to shocks,” the note says. Read the full article here.

Malaysia’s The Star reports the Minister of International Trade and Industry Datuk Seri Mustapa Mohamed as saying that Malaysia’s economy is strong enough to deal with the fallout of Brexit. Read the full article here.

However Japan’s The Yomiuri Shimbun runs an editorial titled Brexit vote a disappointment that will shake the world describing the decision to leave the EU as “extremely questionable.”

The editorial states: “It is inevitable that moves to expand and deepen the EU will significantly go backward as a result of the body’s unifying force being depleted.

“What will become of the British economy, which has relied on the EU for half of its exports? If the City of London’s functions as a financial centre decline, it will adversely affect the world economy. Britain needs to work toward reaching points of compromise that would minimise the damage of divorce.

“More than 1,000 Japanese firms operate in Britain and have played a big role in establishing business footholds in Europe. Japanese businesses will be required to re-examine their overseas strategies while closely watching the negotiation process between Britain and the EU,” it concludes.  Read the full article here.

Below are the very early reactions we picked up from the Asian media on Friday, 24 June, the date the results of the EU Referendum were announced. 

An article in India’s Business Standard titled Brexit to create uncertainty in near term: Nasscom reports on the reaction from India’s IT industry body Nasscom to the revelation that Britain will exit from the European Union (Brexit) after 43 years.

The article states that Nasscom says it will lead to uncertainty in the near term but present a mix of challenges and opportunities in the longer term.

It reports Nasscom as saying that the fall in value of the British pound could render many existing contracts losing propositions, unless they are renegotiated whereas the uncertainty surrounding protracted negotiations on the terms of exit or future engagement with EU could impact decision-making for large projects.

The author Kiran Rathee writes: “The Europe market is of prime importance to India. It is the second-largest market for the Indian IT-BPM industry, constituting almost 30 per cent of the industry’s export revenue of about $100 billion. Nasscom said Indian IT companies may need to establish separate headquarters or operations for the EU, which may lead to some disinvestment from UK.”

But the author adds that Nasscom also sees opportunities in the monumentous decision. Rathee writes that Nasscom said that in the long term Brexit could lead to the strengthening of India-UK economic relationships as the UK seeks to compensate for loss of preferential access to EU markets. “This could open up new opportunities for the UK and India as well. With the existing 800 Indian companies employing 1,10,000 individuals in the country, a deeper partnership with India may be in Britain’s interest, Nasscom added,” Rathee writes.

“Additionally, with the UK less dependent on intra-EU immigration into UK, it could become more open to high-skilled immigration from non-EU countries including India, Nasscom said,” the article states. Read the full article here.

According to an article in Quartz India titled Brexit bruised India’s stock markets but the pain won’t last long, Rajeev Shastri, managing director and CEO of Peerless Fund Management, said in an emailed note that the reaction in the global markets to the UK referendum was “an exaggerated one.” “Any reaction of this sort presents a buying opportunity,” he writes. “This is especially true for India, since almost every factual development after the vote presents a benefit, whether it’s lower oil prices or a slower increase in US interest rates.” Read the full article here.

In an opinion piece in DailyO, an online opinion platform from the India Today Group, Abhijit Majumder explains the reasons for what he describes as frustration which has been piling up in the UK, Majumder writes: “A 28-member commission in Brussels, for instance, influences almost 60 per cent of laws in the country. And, none of them elected by the people. There has been resentment over the inability to negotiate and strike international trade deals independently, the UK’s apparently outsized contribution to a weaker EU economy, freedom of movement rules putting intense pressure on public utilities like health, education, transport and housing.” He refers to bureaucratic red tape and “the highest number of terror plots in more than 30 years in the UK”, as well as “memories of the Rotherham child sexual abuse scandal and the mass sex attacks in Cologne.”

He writes: “Just as the West forcing the idea of democracy on the Middle East is appalling, forcing a deeply problematic Euro-multiculturalism on the UK or France is counterproductive. The rise of the British empire was out of crippling adversity, not glorious advantage. Waterloo is not the only time the British have turned seemingly insurmountable odds into opportunity.They are possibly the best when being selfishly practical, even petty, about their national interest. And that is why being an island again is likely to work.” Read the full article here.

Some of the reactions in China are summed up in a post Reactions to Brexit in Chinese (Social) Media on the Chinese social media channel Weibo. 

It highlights an article by Chinese author Xi Yinghong (奚应红) who writes for In Touch Today. It has this quote from his article: “While London’s social elite is still loudly debating the negative implications of Brexit for UK economy, migration, and national sovereignty, the masses are more likely to be infected by these kinds of slogans: ‘We want to control our own borders, formulate our own laws, and get our money back from Brussels.’ Although they are talking about the same issues, the way they are expressed reflect a different psychological and emotional stage – and this difference is especially evident when it comes to the issue of immigration.” Read the full article here.

Chris Peterson, Managing Editor, Europe, for China Daily, is pessimistic about the implications of Brexit. In an article titled UK vote to leave the EU blows the whole European plan wide open, he writes:  “Once the flag-waving and celebrations die down, Britons are going to be left wondering just what they have left themselves in for. Partners such as China, with whom Britain is currently enjoying a ‘golden age’ according to President Xi Jinping and Prime Minister David Cameron at the end of the Chinese leader’s state visit last October, must be wondering what comes next. One estimate currently doing the rounds is that it will take 500 British officials and 10 years to negotiate a fresh trade deal with China.”

He also writes that the Chinese view the UK as a sort of “bridgehead” into the European Union. “So what happens to that theory now, no-one knows,” he writes.

He continues: “The thing that is certain is years of chaos will ensue as the various ties that have bound the UK to the EU are painstakingly untied.”

He concludes that “Britain’s hapless prime minister had managed, with his decision on holding an EU referendum, to split the country, threaten the future of the EU, divide his own party, as well as usher in months, if not years of uncertainty.” Read the full article here.

Meanwhile The Japan Times reports on shock and disapproval among expats in Japan and the Japanese Government at Brexit and fears that it will hamper the EU-Japan trade deal. 

In an article titled Brexit could hamper Japan’s efforts on EU deal: analystsYako Mie, Beatrice Thomas and Magdalena Osumi, write that: “Britain’s historic decision to leave the European Union could hamper Japan’s efforts on a trade deal with the EU as well as its relationship with Asian and other global partners, analysts said. The comments Friday came as the government here described its disappointment at the exit, and British expats in Japan also reacted in shock and general disapproval. Trade minister Mikio Haya-shi told reporters on Friday that Britain’s decision ‘may make it hard’ for Japan to reach an economic partnership agreement with the EU by the end of this year.” Read the full article here.

The Philippine Star on the other hand reports that the Philippine Chamber of Commerce and Industry (PCCI) says that the Philippines will only be affected by the British exit from the EU if the United States is affected.

“If it affects the United States, then we are affected but I think the prognosis is it won’t affect if they leave. I know that it will affect generally our European market because I don’t think it will be good for the EU if they exit,” it quotes PCCI chairman Sergio Ortiz-Luis as saying. But the paper reports that Luis, however, says that the Philippines’s relationship with Britain will not be affected by Brexit. Read the full article here.

According to The New Strait Times in Malaysia the Chairman of the Securities Commission Malaysia Tan Sri Ranjit Ajit Singh said: “Our view is that the market will adjust to reach an equilibrium, the long term implication has not been fully reflected yet but as far as Malaysia market is concerned, we see orderly conditions to prevail. We are monitoring the development and believe that market players are well capitalised and are able to absorb any reaction that may occur. So far, market conditions have been manageable in terms of the impact. We are keeping a close watch on the implications to the financial market, industry and economy. What is clear is that we must be able to ensure and demonstrate our commitment towards open trade and the advantages it provides to Malaysia and ASEAN. These will have implications for our markets.”

Malaysia’s The Star Online carries a quote from Eco World International Bhd executive vice chairman Tan Sri Liew Kee Sin saying: “Britain is still a hugely important economy in Europe with highly principled, professional and competent leaders. I have every confidence that the UK Government will do their utmost to take proactive measures to assuage pro-Brexit concerns and move the UK forward on every front.” Read the full article here.

In an article in The Jakarta Post titled Indonesia must be wary of possible Brexit domino effect: Economist Anton Hermansyah and Ayomi Amindoni write: “Indonesia must be aware of a possible domino effect of the Britain’s exit from the European Union, although Brexit will most likely not have a direct impact on the economy in the near future, Bank Central Asia Economist David Ernest Sumual says. The Brexit effect will not significantly affect Indonesia and ASEAN trade as export volume to the UK is small at only 0.9 percent and 1.3 percent, respectively, of total trade, he said. However, prolonged political risk could affect the economy.” Read the full article here.

naomi.canton@asiahouse.co.uk

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