Matthews Asia Perspective: Brexit

Matthews Asia Perspective: Brexit

The recent announcement affirming the U.K.’s vote to exit the European Union has many ramifications—many of which affect millions of people in a negative way. Some refer to Friday’s announcement as a Black Swan event. Regardless of how the event is characterized , the fact is that the exact implications are largely unknown, the potential for a domino effect is real, governments and companies will need to re-think strategy and individuals will be impacted. Hopefully we will have more clarity in the days ahead, but it is always difficult to predict macro influences or investor sentiment. What is more apparent to us is that good businesses exist regardless of macro movements.

Reactions since Announcement:

The FTSE 100, a cap-weighted index traded on the London Stock Exchange, has suffered significantly—down 15.79% in USD terms in two trading days since the announcement.

Initially, Japan certainly was Asia’s worst performing stock market with the Nikkei down the day after the announcement, almost 8% in local terms and 4.8% in USD terms. Japan was affected by worries that a stronger yen would negatively impact future earnings, especially for global exporters. The Japanese yen hit 100 vs. the U.S. dollar early in the trading session which sparked a stronger-than-anticipated equity reaction. The Nikkei recovered slightly overnight bringing its two day loss in USD terms to -2.10%.

The worst performing equity sectors within Asia ex Japan were energy, industrials and materials while the best performing sectors were consumer staples, health care and utilities. Asian currencies generally outperformed the Euro and GBP with export/commodity related curren­cies performing worst (Korean won, Australian dollar, and Malaysian ringgit). Interestingly, local Chinese shares, represented by the Shanghai Composite performed rela­tively well, down less than 1% in USD terms since the Brexit announcement.

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