Johnson’s Brexit plan set to trigger disruptions

Markets are expected to take a hit until there is clarity on the extent of disruptions

by ALIFAH ZAINUDDIN / pic by AFP

BORIS Johnson’s appointment as the new UK prime minister (PM) and his “do or die” stance on Brexit is expected to be tumultuous and lead to global risk aversion, experts said.

Johnson, who pledged to leave the European Union (EU) even without a deal by Oct 31, has named several key figures in Britain’s Brexit campaign on his Cabinet.

Dominic Cummings, who is described as the architect of the Brexit campaign, has been made senior advisor. Brexit hardliner Dominic Raab and Eurosceptic Priti Patel were given the role foreign secretary and home secretary respectively.

Political observers have described the “provocative” move as a sign of Johnson’s determination to leave the EU at any cost in less than 100 days.

On the market front, reactions around the global have been relatively muted, with many stocks in Asia Pacific posting gains on developments on the US-China trade front. It was reported that the two economic powerhouses will hold in-person trade negotiations next week.

Sunway University Business School economist Prof Dr Yeah Kim Leng expects financial markets to take a hit over the next few months until there is clarity on the extent of disruptions to trade and business activities.

“The negative effects of a hard Brexit may not have been fully factored in by markets. So far, the benign market reactions may be due to the flexibility shown by the EU to accommodate the change in UK’s premiership,” Yeah told The Malaysian Reserve (TMR) recently.

Yeah, who was reappointed as an external member in Bank Negara Malaysia’s monetary policy committee in April, said the UK’s economic prospects are likely to dim post-Brexit due to increased uncertainties.

“Businesses are reassessing risks and opportunities that hinge on the nature of the UK’s trade and economic arrangements with Europe. If unfavourable, we may see Malaysian firms following Khazanah Nasional Bhd’s footsteps,” he said.

Khazanah MD Datuk Shahril Ridza Ridzuan had previously confirmed reports that the fund would close its 10-staff office in London as it fell under Khazanah’s “high-cost” base operations. Shahril Ridza said the move was made as part of the fund’s cost-saving plan.

Several other Malaysianowned entities have significant investments in the UK, including the country’s two largest funds, Permodalan Nasional Bhd and the Employees Provident Fund, who are the owners of the Battersea Power Station. Others include property developers SP Setia Bhd, EcoWorld International Bhd and Sime Darby Property Bhd.

Meanwhile, Asian Strategy and Leadership Institute’s Centre for Public Policy Studies chairman Tan Sri Dr Ramon Navaratnam described Johnson as more “decisive” and “practical” compared to his predecessor, Theresa May.

He said the UK’s decision to separate itself from the EU could see Britain working closer with Malaysia and other countries in Asean.

Universiti Malaya economist Prof Dr Rajah Rasiah expressed a similar opinion, and said while the UK will not be able to enjoy the economic privileges of being within the EU, including on tariffs, it will also have the autonomy to engage with the world without the constraints imposed by the EU.

Additionally, Rajah does not foresee much impact on the Malaysian economy from Brexit as Britain is not among Malaysia’s major traders.

Meanwhile, Charles Hay, the British High Commissioner to Malaysia, said the change in the UK PM does not affect the country’s relationship with Malaysia.

“The change in UK PM does not affect the UK’s longstanding relationship with Malaysia, nor will it change the work that we do in Malaysia, for example, in strengthening bilateral trade and investment and supporting Malaysia in its reforms agenda.

“In addition, the UK also sees Malaysia as an important partner in Asean and in the Commonwealth. We will continue to engage Malaysia to build on the breadth and depth of our relationship,” Hay said in a statement to TMR yesterday.

According to the British High Commission in Kuala Lumpur, bilateral trade between the UK and Malaysia totalled £4.8 billion (RM24.65 billion) in 2018.

Education ties form a key pillar in the bilateral relationship, with over 18,000 Malaysians studying in the UK every year. Five British universities have opened their branch campuses in Malaysia, more than in any other country.