EU referendum: Why Asia is watching

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EU and UK flagsImage source, EPA

The fallout from the UK's referendum on its membership of the European Union will be felt in Asia as well, says the BBC's Karishma Vaswani.

Here she explains why Asian investors, traders and businesses will be closely watching Thursday's vote.


Any significant movement in the British pound will have an impact on Asian currencies. Whenever the pound falls, investors tend to gravitate towards the US dollar and the Japanese yen.

Japan has already had to grapple with a rising yen which has hurt exports from its biggest companies.

Earlier this week, Japanese Finance Minister Taro Aso said he would consider stronger measures than before if that trend continued - and some interpret that to mean Japan may sell the currency to weaken it.

Other Asian currencies worth watching are the Indonesian rupiah and the Malaysian ringgit. Both are considered risky assets and typically are the first to get hit by negative sentiment amongst investors.


Volatility remains the biggest risk to stock markets.

In Asia, there has already been some flow of funds into treasuries and other safe haven assets as some investors wait out the uncertainty from the sidelines.

Image source, Getty Images

Investments in the UK

Asian high net worth individuals have long seen the UK - and in particular London - as a hot spot for property, and many hold multiple apartments, offices and houses in the British capital.

Asian property owners will be keeping an eye on the British pound, as many of these investments are financed through foreign currencies.

Any fall in UK property prices may reduce the amount of foreign investment. But it may also prove to be a buying opportunity for those with ample amounts of cash, and who believe in the long-term growth story of the British economy.

Many Asian companies invest in the UK and use it as a base to expand into other EU countries. Japan, India and China have been the most vocal about the potential impact of the decision on businesses.

According to the Japan Business Federation, Japanese companies employ around 140,000 people in the UK, and have invested around US$59bn (£40bn) there.

Indian industries are also watching this vote very closely - last year, it became the third-largest investor in the UK in terms of number of projects, behind the US and France.

Image source, Reuters

Trade partnerships

In the event of a decision to leave the EU, the next step would likely be for Asian countries to negotiate bilateral trade partnerships with the UK, separate from the EU's current trade deals with the region.

Think tank Capital Economics says what form the deals take will depend on the "UK's relationship with the remaining EU, and policies adopted by the British government".


Capital Economics calculates that Asian exports to the UK are worth about 0.7% of the region's GDP - so most Asian businesses are still relatively insulated from any immediate impact following the referendum decision.

Businesses in Cambodia, Vietnam and Hong Kong have the strongest links to the UK and will feel any effects the most. Australian financial markets and businesses are more exposed to the UK than their Asian counterparts.