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Saturday, June 25, 2016, 01:00

HK markets to face volatility after Brexit

By Duan Ting
HK markets to face volatility after Brexit

Hong Kong stocks slumped after Britain’s unexpected departure from the European Union on Friday. Experts say that Hong Kong financial markets will face volatility, but a global financial crisis is not considered likely.

The Hang Seng Composite Index tumbled 609 points to 20259.13 with a decrease of 2.92 percent as the “Leave” campaign of Britain unexpectedly securing around 51.8 percent of the vote. The share price of the British bank HSBC opened at HK$49.25 and recorded a drop of 6.59 percent to HK$47.45 and Standard Chartered dropped 9.48 percent from HK$61.45 to HK$57.75.

The market reflected shock at the result that the FTSE 100 Index dropped 3.85 percent to 6090.61 at 9:28 am in London. The pound crashed to the lowest level since 1985 as sterling fell below $1.35.

Financial Secretary John Tsang Chun-wah told a media briefing on Friday afternoon that Hong Kong financial markets will face volatility in the near future, but the situation would be under control.

Fielding Chen, chief Asia economist at Bloomberg LP, said Britain’s departure from EU was pulling the economy of the UK but also EU down. It was putting pressure on the Asian region.

HK markets to face volatility after Brexit

A passer-by walks past a panel in Central displaying the falling Hang Seng Index after Britain voted in favor of exiting the European Union on Friday. (Edmond Tang / China Daily)

"The pound and euro are expected to be weaker and the US dollar will be stronger,” said Simon Black, a partner at law firm Allen & Overy.

"As there are numbers of European financial institutions in Hong Kong, their business will be affected by Brexit, including the investment banking business and bank-to-bank lending business," predicted Chen.

But Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets, said he did not see Brexit having any direct impact on the fundamentals of the Hong Kong economy.

"As for the stock market, the Hang Seng Composite Index is expected to hit 19,000 this year,” said Hong Hao, chief China strategist at Bocom International Holdings Co.

Hong stressed that Brexit is a historic event. Its impact is hard to predict but he believes it is the start of another possible global financial crisis.

"The departure is totally a ‘Black Swan’ event and the worst day for the integration process of Europe,” noted Chen.

Investors actually banked on expectations on Thursday that Britain will vote to remain in the EU as Hong Kong stocks chalked up a fifth straight day of gains.

Black from Allen & Overy predicted that there will be economic and political volatility in global markets in the coming weeks or years. This will mostly impact on banks and possibly lead to further problems in the EU. Central banks need to take action to keep this volatility under control and avoid a global crisis.

Black said he was also concerned that global investors and corporates will re-evaluate their investments and might lose confidence in UK and also other European countries so there will be a risk of an outflow of funds.

But according to Chen, the official process of Brexit is not a one-off shock but a gradual process in two to three years. Thus, a crash is unlikely to happen but some small economic entities like Greece will be greatly affected.

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