As the vote over whether Britain should leave or remain in the European Union is drawing near, analysts are issuing a series of warnings that Britain’s EU exit, or “Brexit,” would have a severe impact on the global economy.
A Brexit would also deal a blow to Korea, whose biggest free trade partners include the EU, as investors are expected to pull their funds out of Asian markets exposed to risks stemming from Britain’s EU referendum.
Confidence has already begun to be negatively affected with Korean stocks and won falling on Monday along with Asian equities in China, Japan and emerging markets. The benchmark KOSPI continued to drop, ending at 1,972.03 on Tuesday, down 0.36 percent. The won-dollar exchange fell 0.2 won to 1,173.2 won.
Uncertainty over Brexit and the U.S. Federal Reserve’s interest rate is further taking a toll on Asia’s fourth-largest economy. The Federal Open Market Committee will be holding its monetary policy meeting from June 14-15.
“This month in Korea’s financial market will inevitably face volatility and move in response to what will happen with regards to Brexit and the Fed meeting,” said Park Hyuk-soo, an analyst at Daishin Securities.
Although Korean exports to Britain is not significant enough to cause concerns over this geopolitical issue, Britain’s economic status within the EU and the global economy is highly influential. Korean EU exports accounted for about 9 percent of the total, including exports to Britain taking up about 1 percent, last year.
“Should Brexit be realized, there is a high possibility of not only capital from Britain pulling out of Korea’s financial market but also those from other European economies exposed to the risk,” said Kang Sun-koo, a research of LG Economic Research Institute, in an analysis report.
British capital invested in Korean stocks worth 420 billion won ($358 million) in the first four months of this year accounted for about 15 percent of net foreign equity investment, according to LG Economic Research Institute.
The Korea Institute for International Economic Policy also echoed this concern for the Korean economy, saying in a report: “Capital outflows from the country can be expected with the won depreciating against the U.S. dollar.”
The referendum over Brexit will take place next week on Thursday. It has been reported that the British public is split over this issue. However, the U.S. and other European economies such as Germany and France have urged Britain to remain within the EU. Britain has been seeking to regain control over its borders amid a high number of Europeans entering the country without visas for residency and work, while expressing discontent over high EU membership fees with a lack of benefits.
By Park Hyong-ki (hkp@heraldcorp.com)
