StanChart expects London to keep status as financial centre

He said investors could make their financial transactions in the morning markets of Hong Kong, Singapore and Tokyo and in New York as the night market.
He said that even though UK citizens had voted in a referendum that the country should leave the EU, Britain will spend two years negotiating with the union on the Brexit, so it is too early to say that London will lose out as a financial centre.
“What the market should closely monitor … from now on is foreign direct investment in Britain,” he said.
The EU is the No 1 contributor of FDI in Britain, so the market should keep an eye on whether the status of the UK as a destination for direct investment is shaken, he said.
Moreover, the market should follow the further cooperation of the EU with the UK when the country is no longer a member, he said.
He said the policymakers of countries including EU members knew that the referendum was coming up, so they and commercial bank had time to prepare for the impacts of a Brexit, including financial costs. Therefore, he does not think the Brexit will a negative impact on the funding costs of central banks and commercial banks. Each central bank has tools to inject liquidity into the system if there are unusual capital fund flows.
The result of the referendum will put pressure on the US Federal Reserve to increase its interest rates, but it is possible that will stick with the existing rates throughout this year, Minikin added. Another possibility is that it will lower the federal funds rate to zero in the fourth quarter.
Edward Lee, head of economic research for Asean at StanChart, said that while the dollar has appreciated and financial costs in the United States are increasing, which are barriers to the US recovery, an interest-rate cut is a solution to fuel the US economy.
Minikin said Britain’s economy now was expected to grow by just 1.2 per cent this year, down from the previously expected 1.9 per cent, because of the Brexit decision.
He said the European Central Bank and the Bank of England would embrace monetary easing to carry on their economies, and StandChart expects the ECB will consider new easing in the third quarter. StanChart forecasts that the EU economy this year will grow by 1.2 per cent, lower than the 1.4-per-cent growth expected before the Brexit vote.
The negative impact of Brexit on Asia is limited because of this region’s small trade volumes with the EU and the UK. For Thailand, only 1.4 per cent of its direct trade is with the UK.
But in terms of sentiment, financial markets and currencies in Asia are volatile because capital funds are moving to safe havens like Japan’s yen. The appreciation of the yen is positive to the Thai baht.