Thai stock exchange braces for consequences of Brexit vote

Stock Exchange of Thailand (SET) president Kesara Manchusree said the SET had prepared measures to deal with the impact of a potential Brexit. For example, the SET might use a “circuit breaker”, or temporary suspension of trading, if stock prices became overly volatile.

As for exporters and importers dealing with Britain and the EU, Export-Import Bank president Pisit Serewiwattana said they should hedge against risks to foreign exchange rates and interest rates to minimise possible losses when transactions are completed.

He said either outcome of the referendum could affect both financial and capital markets, causing volatility in the value of the pound and the euro.

Kobsidthi Silapachai, head of capital markets at Kasikornbank, said the “Remain” camp still had a lead over the “Leave” camp late yesterday, but there was a significant percentage of undecided voters. In his opinion, the impact of a Brexit on the global markets could be as great as the after-effects of the collapse of Lehman Brothers in 2008 in the US, which contributed to a global financial crisis.

 

Worry of copycat action

Global investors will retreat for at least six months while governments will have to sharply boost liquidity in capital markets, he said, noting that a Brexit is also worrisome because there could be copycats among other EU members wanting to follow in the UK’s footsteps. 

This would hurt the so-called insurance policy used by European states to bind themselves economically as a means to prevent war.

Even if the UK’s “Remain” camp wins this time, there is a possibility of another referendum about leaving the EU in the future, especially if driven by young voters who do not have memories of wartime experiences.

Besides the potential impacts on capital markets and Thailand’s trade with the UK and EU, a Brexit would also raise questions whether the London residential market 

 remained a safe haven for international investors, including high-net-worth Thais who own UK properties, according to Adam Challis, head of residential research at JLL in London. “The mainstream residential market is broadly undeterred by Britain’s EU referendum, although the risks of leaving the EU are becoming a bigger concern. Buyers are centrally focused on economic and job prospects, which are expected to experience modest negative impact should British voters wish to leave the European Union.

“International investors will balance uncertainty against the potential currency arbitrage that could open up. The downside risks are with a Brexit option, but there are also arguments to suggest the UK will adjust relatively quickly to the new reality. While institutional structures will undergo quite large changes, the trading relationship with the rest of Europe will remain important to both the UK and the rest of Europe regardless of the outcome,” Challis said.

According to a Citibank research, likely medium-term consequences of a Brexit include a worldwide strengthening of protectionist and anti-globalisation sentiment and policies, while the short-term risks would be a major blow to business and consumer confidence and a fear-driven freeze in financial markets.

Britain’s AAA credit rating could be swiftly downgraded by Standard and Poor’s should the public vote in favour of leaving the EU, S&P chief sovereign ratings officer Moritz Kraemer told German daily Bild, citing Reuters.

The SET index yesterday closed at 1,436.40 points, a gain of 11.72 points, and volume trading was Bt45.7 billion, while foreign investors were net buyers at Bt1.29 billion.