The direct real impact on Asia-Pacific economies from the UK’s decision to leave the EU (Brexit) is likely to be limited since the relevant linkages are weak, said S&P Global Ratings in a report published today titled ‘Brexit Impact On Asia-Pacific Is Largely Credit Neutral’.

“Whether we get any measurable real impacts from Brexit depends on a couple of things. One, on how long the market volatility lasts, and whether it begins to spill over to the real economy.

“And two, whether we get any political aftershocks, including EU exit/entry votes, from other European markets,” said S&P Global Ratings’ Asia-Pacific chief economist Paul Gruenwald in a statement in Singapore.

S&P said Brexit is expected to be challenging but is not likely to have widespread near-term negative rating consequences for home-grown Asia-Pacific banks and other financial institutions.

It’s still early days, though, as the geopolitical ramifications of Brexit are yet to fully play out.

The direct exposures of most Asia-Pacific financial institutions to the UK appear to be manageable at current rating levels.

Generally, S&P Global Ratings’ portfolio of rated corporates in Asia-Pacific has limited exposure to the UK market.

For China’s speculative-grade ‘BB+’ or lower corporate issuers, US-dollar bond maturities look manageable due to their proactive refinancing.

“The Japanese yen’s status as a safe-haven currency could lift its value, which will likely have a direct negative impact on the overall earnings of companies with net export exposures,” S&P Global Ratings credit analyst Terry Chan meanwhile said.

S&P sees limited impact on sovereign credit support for most Asia-Pacific countries in the immediate aftermath of the British poll results.

It doesnt’t expect Brexit to affect the ratings on Asia-Pacific structured finance transactions.

Unemployment is a key driver of loss in structured finance transactions and any direct impact of Brexit on employment conditions in Asia-Pacific economies is likely to be limited in the near term, it said.

“Brexit’s market impact is likely to be significant in the near term, particularly in terms of stock market and currency volatility,” said Chan.

“The medium-term impact on Asia-Pacific markets, however, is likely to be limited as investors make decisions based more on economic and financial fundamentals rather than just sentiment.

“If market volatility were to spike and prolong, we believe Asia-Pacific regulators are likely to take action, including extending short-term liquidity,” he added.

- Bernama