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Will Brexit Be The Trigger For The Next Financial Crisis?

The British would be going to the polls next week on June 23 to decide on the fate of their country’s European Union membership. Neither the ‘Stay’ nor ‘Leave’ camp has a clear lead at the moment.

If the British were to leave the EU, it could result in a major economic upheaval throughout the world. This fear was also part of the reason why the Federal Reserve in the US had decided to hold off increasing interest rates in its most recent meeting. Fed Chair Janet Yellen was quoted as saying:

“Clearly, this is a very important decision for the United Kingdom and for Europe. It is a decision that could have consequences for economic and financial conditions in global financial markets.”

The market anxiety over the fate of Britain’s EU membership had already depressed property prices in London earlier this year. In Singapore’s stock market, there are a number of companies with exposure to the UK property market. One such company is GL Ltd (SGX: B16), formerly known as Guocoleisure. Over 90% of its revenue in its fiscal year ended 30 June 2015 was sourced from the UK and the company has over 5,000 hotel rooms in London.

A Brexit could also possibly cause London to slowly lose its status as the financial hub of Europe because of regulatory requirements. Another important implication of a Brexit would be that gaining an EU membership is not irreversible – this could leave the door open for the departure of troubled countries such as Greece.

The bursting of the housing bubble in the US in 2007 lead to the Global Financial Crisis. Would Brexit be the trigger of the next major economic crisis? No one has a crystal ball. We shall see.

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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.