The Effects of Brexit on Global and Vietnamese Financial Markets

Group Assignment Cover Sheet
Subject Name

Financial Risk Management

Lecturer’s Name

Dr. Nguyen Thi Thuy Linh

Title of Assignment

The Effects of Brexit on Global and Vietnamese Financial Markets

Class

BBUS4.1

Group Number

A

Student Number and Name

1. Nguyen Hoang Anh - 31131023086
2. Nguyen Hua Thanh Le - 31131021192
3. Doan Thanh Long - 31131022563
4. Nguyen Ngoc Linh Dan - 31131022236
5. Phan Van Tien Huu - 31131021623

Contact Number or Email

Victor.engtalk@gmail.com – 0121 288 3731

Length

1755 words

Due Date

August 27th, 2016

Date Submitted

August 27th, 2016

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Nguyen Thi Thuy Linh .The Effects of Brexit on Global and Vietnamese Financial Markets The Effects of Brexit on Global and Vietnamese Financial Markets Group A Nguyen Hoang Anh Nguyen Hua Thanh Le Nguyen Ngoc Linh Dan Doan Thanh Long Phan Van Tien Huu Financial Risk Management 25 August 2016 Dr.

The Effects of Brexit on Global and Vietnamese Financial Markets Executive Summary The proposed referendum of the UK on whether England should leave European Union has been attracting attention of the global community as this event may have considerable impacts on the world’s economy as a whole and the financial markets in particular. the effects of Brexit on the international and Vietnamese financial markets will be closely examined. . For the purposes of this report.

stock markets are in freefall and no doubt a sizeable outflow of capital is underway Invalid source specified. According to Value Figure 1: Value of sterling against US dollar since 1971 of sterling .. The value of the British Pound is currently plummeting. This occurrence results in massive concerns of not only British citizens but also people from all over the world about a unpredictable scenario of the global economy and especially the effects on the financial markets. Vietnam has long been a strategic economic partner of the UK.The Effects of Brexit on Global and Vietnamese Financial Markets Introduction England chose to leave the EU with the vote results were 52% of agree compared to 48% of not agree. therefore this event has also significant influence on Vietnamese economy and financial markets as well. after a referendum on Thursday 23th June in 2016. The effects on global financial markets The immediate risks The result of the referendum brings about immediate consequences. This report will shed light on how Brexit affect the international and Vietnamese financial markets.

The Effects of Brexit on Global and Vietnamese Financial Markets against US dollar since. Figure 2: FTSE 100 fall as trading opens after Leave vote. leading to a loss of 6% General Domestic Product (GDP) in 2020.. pushing the UK to stand at risk of losing position the center of global finance and Dennis de Jong .In addition. contributions from 4% to 5% of GDP Invalid source specified. Proposed referendum on United Kingdom membership of the European Union will make the UK lose a stable market of 500 million people in the EU.. by more than half of UK exports is destinations are the EU countries. Investors are no longer interested in the UK market because of this country no longer enjoy the benefits of the EU.com said that "This is simply unprecedented. experts forecast the pound also fell 14-15% within a yearInvalid source specified.. Meanwhile. the pound has fallen off a cliff and the FTSE is now following suit. The FTSE 100's initial slump was its biggest one-day fall since the collapse of Lehman Brothers in October 2008. suffering its biggest one-day fall in living memoryInvalid source specified. the pound has collapsed to its lowest level in over 30 years." At the end of 24th June 2016. the UK need large amounts of foreign currency to pay for .managing director of UFX.

the investment obviously would pour in other EU members. such as Germany.) Before the occurrence of Brexit event. trade and currency. etc. which is accounted for £8.. . Japan. The impact of Brexit on UE’s market and others (such as China. The first significant loss of EU is the annual net contribution of UK. especially the EU. according to the forecasts of many experts. The second impact of Brexit on the European Union market is investment. investment.8% EU expenditure Invalid source specified.The Effects of Brexit on Global and Vietnamese Financial Markets import operations. If UK loses the potential of being the gateway to access EU. The United Kingdom annually receives the largest amount of EU’s foreign direct investment accounting for 21% in the 2000-2014 periods.5 billion. will be required to fulfil the vacancy by contributing additional amount unless there is a cut down on EU expenditure. approximately 5. According to Phil Noble (2016) there are four main financial risks that EU has to face with when UK leaves: budget. US.5 billion to £9. The consequence of this is the other members of EU. This will be one of many reasons to push the British economy into recession in the long term.the largest member. many economists forecasted there would be huge economic effects on the world financial market.

accordance with World Trade Organization rules. 9% Sources: UNCTAD and Citi Research Next. 15% Luxembourg. 3% UK. even the changes will be small but it somehow affects trading relationship between EU and UK.7225 (Lawrence. Only a few hours after UK voted to leave EU. 5% France. 2016). Brexit also lead to the reduction of euro-based earning of European companies in UK. based on data from ONS. Therefore when leaving EU. 22% Sweden. import tariff will be applied. Noble forecasted the whenever Brexit occurs. 4% Germany. the exchange rate USD/GBP raised 0.4 billion.6685 to over 0. Figure 3: Share in EU inward FDI (%). 4% Poland. over half of the UK’s imports. And finally. 2000-2014 . the British pound would become weaker than others currency. imports from countries within the EU is £221. 10% Netherlands. The Pink Book. 12% Italy. 2000-2014 Remaining EU-28. 9% Spain.The Effects of Brexit on Global and Vietnamese Financial Markets Share in EU inward FDI (%). 2014. especially US dollars. As a result. 7% Belgium.

The Effects of Brexit on Global and Vietnamese Financial Markets Figure 4: USD/GBP exchange rate variation over 90 days In terms of other markets. people might feel uncertain about the economy so they reconsider their spending. The effects on Vietnamese financial markets Direct impacts of Brexit on Vietnam When UK leave the EU will have negative impacts on Vietnam's economy through trade and investment channels. Brexit seems to have slightly effects on China GDP. Considering the China market. the decrease of demand in EU leads to the decrease of GDP in China from 6. there will be a significant loss for US market. According to Forbes.2% to 6% (2016). in terms of investment. since the British pound’s weakness would affect the Euro. the consequences of Brexit somehow had impact on the citizen of United Kingdom and Europe. according to Tim Smith (2016). we are considering the two largest ones US and China.437 billion and is ranked 15th among 105 countries and territories investing in Vietnam. the UK had 222 valid projects with a total registered investment 4. For US. Up to 2015. If the customers continue to cut down their spending. Moreover. the American companies and investors who invest money in UK and EU will likely to suffer from credit risks. Capital of British foreign investment focused primarily real estate .

Vietnam exported to the UK's super $ 1. If the UK economy downturn. Luong Van Khoi. If Britain left the EU. equivalent to 15% of the export value of Vietnam in the EU area. Britain's economic downturn will lead to a reduction in demand for commodities from Vietnam.65 billion in 2015.9 billion in 2015. Although Vietnam's exports to the UK accounted for only 3% of the total value of exports. The export turnover of Vietnam to the UK achieving compound growth (CAGR) of nearly 17% over the period 2008-15. Separately first 5 months of 2016. the British pound depreciated even if our exports to Britain. reaching a record US $ 4. vice president of National Center for Socio Economic Information and Forecast. do reduce the value of our trade surplus with the United Kingdom. more or less will affect the flow of capital from Britain in Vietnam. Vietnam has maintained a trade surplus in the UK. Vietnam always has trade surplus to this market. .7 billion and $ 3. According to Dr. economic growth in Britain fell. reduce exports and trade surplus. accompanied by reduced savings and investments. will make Vietnam's trade deficit to rise. the volume does not change when a large sterling devaluation will affect the value of our exports to the UK.The Effects of Brexit on Global and Vietnamese Financial Markets sector and processing technology.

it would quickly affect domestic general price and domestic gold price. Yen increased in value will make high public debt. Furthermore.The Effects of Brexit on Global and Vietnamese Financial Markets In the long run. The high government debt will make slow economic grow and create the burden on the state’s budget.5 to . this is a long-term risk for Vietnam. investment and world commodity prices. In June 6th. 13 percent for Yen. and Euro diminished in the value. Its consequences will lead the Yen increased in value. (Mai. 7 percent for Euro and 9 percent for other currencies. The increase in World gold price would result in the immediate increase in domestic gold price. Indirect impacts of Brexit on Vietnam Brexit would have a significant indirect impact to Vietnam's economy through trade. the structure of public debt in Vietnam includes 55 percent from Vietnam Dong. 16 percent from USD. 2016) First of all. This risk could increase because of the appreciation of the Yen. the British pound decreased in value after this country voted to leave the European Union (EU). domestic gold price increased surprisingly and reached the price of 35.

9 million VND per ounce. In the case the UK withdrew from the European Union (EU). The stock market in Vietnam decreased 11. known as Brexit. direct impact of proposed referendum on United Kingdom membership of the European Union to Vietnam is not considerable. including Vietnam will probably go lower in the coming months. in the context of Vietnam's economy increasingly deeper integration with the world economy. However. growth in emerging economies in Asia. many experts believe that VN-Index is mainly affected indirectly by the volatility of the global stock market.5 points about 1. the Vietnam market will encounter with many disadvantages. which is 1.85 percent to 620. will have some fluctuations. In particular. despite the immediate.The Effects of Brexit on Global and Vietnamese Financial Markets 35. This price is also the highest price recorded since August 2015.9 million VND higher than the initial price before Brexit’s final result. which will create the investor’s panic rather than the . With global growth prospects reduced. the stock market is the place where unexpected results are not favored by investors. However.77 after Brexit vote. but the indirect impact is significant. Global economic outlook will be bleaker after the results of the referendum in the UK.

When the global market is stable. UK … will move their money from Vietnamese market to traditional market to avoid the risks. coffee…. The Vietnamese government should have appropriate plan to improve the economy and make the market more stable.The Effects of Brexit on Global and Vietnamese Financial Markets negative influence of Brexit on Vietnam. the shift of indirect capital flows is one of the reasons that impact Vietnamese stock market. the foreign capital flows will limit investment on the potential risks market like Vietnam and the foreign investors including EU. Brexit has shown several unexpected effects on the world’s economy and the global financial markets such as the immediate depreciation of GBP or decrease of investments. Brexit may also have indirect impact on the enterprises. In Vietnam. Vietnam will prevent these impacts and become the attracting destination for capital inflows. Besides. . which might fear many investors. Brexit has bot direct and indirect impacts on the economy and financial markets shown through the decline in points or the unexpected fluctuation of stock market. Conclusion To sum up. having commercial relations with European Union (EU) such as footwear. In addition.

CEPR's Policy Portal. O. Retrieved from BBC: http://www. Luong Van Khoi (2016. W. (2016). C. chứng khoán Việt Nam: Retrieved from http://kinhdoanh.vn/brexit-se-tac-dong-the-nao-toi-kinh-te-viet-nam-d47443. June 24). & Schulz. Irwin. (2016. (2016. Brexit: the immediate risks.com/news/business-36611512 VARDAKOULIAS.The Effects of Brexit on Global and Vietnamese Financial Markets Reference Mai. June ). (2016). The implications of Brexit for the rest of the EU. June ) Brexit sẽ ảnh hưởng tới Việt Nam thông qua các kênh thương mại và đầu tư: Retrived from http://tapchitaichinh. Bnews.net/tin-tuc/vi-mo/bo-truong-ke-hoach-amp-dau-tu-brexitanh-huong-ty-gia-chung-khoan-viet-nam-3428630.. Rahbari.html Nguyen Chi Dung (2016.vnexpress.html Business.org/blog/entry/brexit-the-immediate-risks Buiter.. VOX.vn/nhung-he-qua-truoc-mat-cua-viec-anh-roi-eu/18448.html Nguyen Mai (2016. Retrieved from The NEF: http://www. June 24).vn/nghien-cuu--trao-doi/trao-doi-binhluan/brexit-se-anh-huong-toi-viet-nam-thong-qua-cac-kenh-thuong-mai-va-dau-tu84675. Noble. June) Brexit sẽ tác động thế nào tới kinh tế Việt Nam : http://baodautu. (2015). Retrieved from Bnews. BREXIT: the impact on the UK and the EU. E. From budget to banks: How Brexit could impact the EU economy.html?utm_source=search_vne .neweconomics.vn. June 24). P. Pound plunges after Leave vote. Reuters. Brexit sẽ tác động thế nào tới kinh tế Việt Nam.vn: http://bnews. Global Counsel.bbc. Brexit ảnh hưởng tỷ giá. G. (2016. Những hệ quả trước mắt của việc Anh rời EU. N. (2016).