Brexit: The Catalyst For Singapore’s Rise and London’s Fall As Global Financial Centres?

Everyone seems to have something to say about the shocking vote by the people of the United Kingdom to exit the European Union. A lot of ink (and bytes) have been spilled on the market’s short-term reactions. But, I would like to take a step back and consider the longer-term picture.

There are several possible long-term consequences that come with Brexit and one of them concerns Singapore: The likely fall of London as one of the world’s important financial centres and the void it opens up for Singapore to try and fill.

Who’s who in the financial centres crowd

Long Finance surveys finance professionals semi-annually to determine the relative ranking of global financial centres for its Global Financial Centre Index (GFCI).

The latest survey was done in March 2016 and London, New York, and Singapore were ranked as first, second, and third, respectively. It’s worth noting that Singapore had climbed from fourth spot in the previous survey, leapfrogging Hong Kong.

Now that the UK has decided to leave the EU, it is likely to lose access to huge swathes of the European market. Other European financial centres such as Paris, Frankfurt, and Berlin have taken advantage of Brexit-related uncertainties and are starting to lure bankers in London over.

But, beyond the UK, Europe has other problems. Brexit may potentially trigger a domino effect, leading to other EU member countries – such as France, the Netherlands, Finland, and more – to leave the union. These are sources of great uncertainty for Europe’s financial industry to grapple with and could be a huge headwind for other European cities’ quest to replace London as a key global financial centre.

Indeed, European stocks lost 7% on the day the UK held its vote to leave or stay in the EU. These factors increase the odds of Singapore growing even further as a key global financial centre.

China is another factor that could enhance Singapore’s status. In March 2016, Hong Kong was the largest renminbi (China’s currency) clearing centre in the world. The UK and Singapore took the second and third spots respectively. With the potential turmoil wrought by the UK’s decision to leave the EU, Singapore could be in an advantageous position.

A Fool’s take

A potential loss for London’s finance industry is a potential gain for Singapore’s. In Singapore’s stock market, some obvious companies that are exposed to the finance industry would be the three local banks, namely, DBS Group Holdings Ltd (SGX: D05), Oversea-Chinese Banking Corp Limited (SGX: O39), and United Overseas Bank Ltd (SGX: U11).

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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 owns shares in DBS Group Holdings.