London risks shift in fortunes if it ditches EU membership

Brexit will certainly cause currency and securities volatility to go up, says the Tokyo-based economist Jesper Koll.

TOKYO // Brexit will emphasise a shift in assets from London to the more stable Asia, and to Singapore in particular, says the Tokyo-based economist Jesper Koll.

Money does not like uncertainty and instability; it likes certainty, stability and reliability, he says. “Brexit would cause uncertainty and undermine trust.”

One of the most respected economic advisers and commentators in Japan, Mr Koll last year became the chief executive of WisdomTree Japan, a local office of WisdomTree Investments, a New York exchange-traded fund (ETF) and ETF product sponsor and asset manager.

Brexit will certainly cause currency and securities volatility to go up, says Mr Koll, who was previously the chief Japan equity strategist and managing director of Japan equity research at JP Morgan in Tokyo, after holding senior positions at Merrill Lynch and the Tiger Fund in Japan.

“A ‘yes’ vote to Brexit will increase Asian currencies as a store of wealth, instead of what we have seen in the last 10 years, where the sterling and euro were seen as safe havens for Asian investors,” he says.

“Brexit will be a no vote to the sterling, a no vote to the euro, and will lead to capital flight.”

Others are not quite so pessimistic. Eric Fishwick, the head of economic research for CLSA, a Hong Kong-based brokerage agency, thinks Brexit’s effect on Singapore, for example, would be limited.

The business journalist and author Eamonn Fingleton, who has published three books on the economies of east Asian countries, considers Brexit would produce just as many small pluses as minuses for Singapore.

The biggest plus would be that if the UK leaves Europe, the British will be free to restore closer links to members of its former empire, known as the Commonwealth, and would probably provide Singapore with more favourable access to its market than is possible under EU rules, Mr Fingleton says.

“On the minus side, Singapore may in future have less ability to get a hearing for its case in Brussels without the British there to act as friends if not advocates.”

But would a Brexit, as many “remain” advocates insist, create unfavourable currency and securities volatility? “If we’re talking about the acquisition of UK assets, probably not given that the [British pound] has already weakened to reflect the uncertainty,” Mr Fishwick says.

If Brexit disadvantages the City of London, it will rather be through the removal of “financial passport” arrangements allowing financial institutions in one EU state to market products in all EU member states, he says.

He adds, however, the natural winners from a Brexit would be EU members with already relatively large financial centres, like Frankfurt, Paris and, because English is prevalent, Dublin. “All of these are also in European time, which is an advantage for trading 24 hour markets,” Mr Fishwick says.

Most studies of what motivates foreign direct investment suggest that the top two reasons are cost and market access. Brexit will potentially reduce costs of business in the UK, although the UK minimum wage legislation is among the world’s most aggressive and not driven by EU requirements, he says.

“UK employers are already complaining about skills shortages for higher-value jobs even with the free movement of labour,” he says.

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