Financial Effect Of Brexit On Global Landscape

  1. The vote's result of referendum defied expectations and roiled global markets, causing the British pound to fall to its lowest level against the dollar in 30 years.
  2. Brexit fears and slow global growth have hit output in manufacturing sector. A double whammy of Brexit uncertainty and a slowdown in global trade has seen order books in Britain's factories shrink at their fastest pace since the financial crisis. The CBI's industrial trends survey showed that business optimism has notably fallen, investment intentions has worsened, and firms has run down the stocks built up ahead of the original Brexit deadline. According to the survey, manufacturers believe an improvement in the political outlook over the coming months might lead to a pickup in orders and output. In addition, stated that as the tailwind from stockpiling weakens, clouds are gathering above the manufacturing sector. It is being hit by the double blow of Brexit uncertainty and slower global growth.
  3. After analyzing the Brexit effect pre-Brexit and post-Brexit referendum periods on the co-movements between the British pound (GBP), the euro (EUR) and the yen (JPY) against the US dollar (USD), findings indicate a negative impact of the pre-Brexit referendum period on the correlation between GBP and EUR, while there is no significant effect on GBP–JPY and EUR–JPY pairs. The loss of correlation in the GBP–EUR pairing has not been recovered during the post-Brexit referendum period. This situation could be attributed to the uncertainty about the final impact of Brexit on British and Eurozone economies. The loss of correlation in the GBP–EUR pair has important implications for individual investors, portfolio managers and traders with respect to hedging activities, international trading and investment strategies.
  4. We also notice that Post-Brexit referendum, both the London Stock Exchange FTSE100 index (5% decline) and US Dow Jones Industrial Average (450 points decline) indicates violent fluctuations in daily trading described as world-wide stock market crash by the experts. Hence Brexit might have a systematic cascading effect on the global capital market.
  5. According to Olekseyuk et al. developing countries with close ties to the UK might suffer from Brexit as import duties are once again imposed. In particular, 49 of the world's poorest countries presently benefit from preferential treatment that covers 99% of all products under the EBA agreement. According to UN Comtrade data for 2016-2017, although countries under EBA agreement account for only 1.15% of the UK's imports, the share of their exports to the UK exceeds 35% in apparel, 21% in textiles and 9% in sugar. The findings show that losing these preferences together with the UK's withdrawal from the EU may cause EBA countries' GDPs to fall by -0.01% to -1.08%. The simulations also indicate that the highest losses is occurred in Cambodia and Malawi, where dependence on the UK market is strong. Moreover, Brexit may cause the number of those living in extreme poverty (PPP $1.90 a day) to rise by nearly 1.7 million in all EBA countries. These are conservative estimates of Brexit's negative impacts; they do not take into account the additional implications of uncertainty, depreciation of the pound sterling, reduced aid spending, remittances and investments.?
  6. The global stock markets lost trillions of capitalizations the day after Britain's surprise vote to withdraw from the EU. The government bond yields dropped to record lows in countries where investors sought flight-to-safety. The British Sterling depreciated to a low level. Consequently, the stock markets rebounded to higher than the pre-referendum levels with the passage of time, government bond yields went lower, and the British Sterling continued to slide. The results also show the evidence of contagion from Brexit vote to the Japanese and US stock markets at a bearish performance.