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What Singapore Investors Need To Know About A ‘Brexit’

One important socio-economic topic in Europe lately is the ‘Brexit,’ or the possible exit of Britain from the European Union (EU).

British newswire BBC had recently produced a short clip that looked at what impacts could happen to Britain if it tries to become an ‘Atlantic Singapore,’ something that the BBC describes as “an outward-looking nation that’s part of an economic block, but without the political strings attached.”

From this, it can be seen how Singapore is in an enviable position within the Southeast Asia region that Britain hopes to emulate in its part of the world.

The impacts of a Brexit

A Brexit referendum is currently set to happen in roughly two months’ time on 23 June 2016. Those who oppose the exit of Britain from the EU are concerned with, among other issues, the possible economic disruptions the process could bring. With an exit from the EU, British companies would not be able to sell their goods and services as freely to the block.

The British pound has already suffered. For instance, £1 could fetch nearly S$2.10 at the start of 2016. Today, the same pound can only become S$1.92 or so – that’s a decline of around 8% in value against the Singapore dollar.

According to Bloomberg, analysts had expected the Monetary Authority of Singapore (MAS), Singapore’s central bank, to delay any easing plans this month in order to provide adequate firepower to deal with any potential fallout from a Brexit or other global shocks.

But, the MAS surprised the market today by not allowing the Singapore dollar to appreciate, which is effectively an easing of monetary policy.

Why the Brexit matters for Singapore investors

How the Brexit runs out could be important for some investors in Singapore to watch. That’s because there are companies in the Singapore market that are heavily exposed to the British economy.

One such stock is GL Ltd (SGX: B16), formerly known as GuocoLeisure. The company owns over 5000 hotel rooms in London across a variety of brands. In fact, in its fiscal year ended 30 June 2015, the company sourced over 90% of its revenue and 94% of its assets from the United Kingdom, according to data from S&P Global Market Intelligence. If the pound were to decline further, it could pressure GL’s profit in Singapore-dollar terms as a result of unfavourable currency swings.

Foolish Summary

It is entirely possible that Britain remains in the EU after the planned referendum this June. But either way, it’s something worth watching by investors in Singapore too.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat does not own shares in any companies mentioned.