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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

1846 words

Due Date

August 27th, 2016

Date Submitted

August 27th, 2016

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2 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. Nguyen Thi Thuy Linh .

the effects of Brexit on the international and Vietnamese financial markets will be closely examined.3 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. For the purposes of this report. .

therefore this event has also significant influence on Vietnamese economy and financial markets as well. The value of the British Pound is currently plummeting. after a referendum on Thursday 23th June in 2016. 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. 2016). Vietnam has long been a strategic economic partner of the UK. This report will shed light on how Brexit affect the international and Vietnamese financial markets. . .4 Introduction England chose to leave the EU with the vote results were 52% of agree compared to 48% of not agree. The effects on global financial markets The immediate risks The result of the referendum brings about immediate consequences. stock markets are in freefall and no doubt a sizeable outflow of capital is underway (VARDAKOULIAS.

5 According to Figure 1: Value of sterling against US dollar since 1971 Value of sterling against US dollar since. pushing the UK to stand at risk of losing position the center of global finance and Dennis de Jong . .". 2016). The FTSE 100's initial slump was its biggest one-day fall since the collapse of Lehman Brothers in October 2008.vn. At the end of 24th June 2016. the pound has collapsed to its lowest level in over 30 years. suffering its biggest one-day fall in living memory (Business.com said that "This is simply unprecedented. the pound has fallen off a cliff and the FTSE is now following suit. experts forecast the pound also fell 14-15% within a year (Bnews.managing director of UFX.In addition. 2016).

A worse scenario is that countries such as Germany. also have the ability to separate from the EU after its supporters to leave the EU in England won. leading to a loss of 6% General Domestic Product (GDP) in 2020. contributions from 4% to 5% of GDP (Bnews. 2016) may fall into unemployment.6 Figure 2: FTSE 100 fall as trading opens after Leave vote. US. More than 2. and cut off all benefit to preferential rights in society. 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. France. Japan. thereby pushing the alliance to stand before the risk of disintegration. the UK need large amounts of foreign currency to pay for import operations. by more than half of UK exports is destinations are the EU countries. etc. This will be one of many reasons to push the British economy into recession in the long term.2 million Britons are living and working in the EU countries (VARDAKOULIAS.. and Spain .. Not only weaken the economy. Investors are no longer interested in the UK market because of this country no longer enjoy the benefits of the EU. The impact of Brexit on UE’s market and others (such as China.) . Meanwhile.vn. according to the forecasts of many experts. Brexit may also entail the risk that British society becomes unstable. 2016).

The consequence of this is the other members of EU. The first significant loss of EU is the annual net contribution of UK. will be required to fulfil the vacancy by contributing additional amount unless there is a cut down on EU expenditure. many economists forecasted there would be huge economic effects on the world financial market.7 Before the occurrence of Brexit event. which is accounted for £8. The United Kingdom annually receives the largest amount of EU’s foreign direct investment accounting for 21% in the 2000-2014 periods.the largest member. the investment obviously would pour in other EU members. If UK loses the potential of being the gateway to access EU.5 billion. trade and currency. especially the EU. such as Germany. According to Phil Noble (2016) there are four main financial risks that EU has to face with when UK leaves: budget. investment. 2015).8% EU expenditure (Irwin. . The second impact of Brexit on the European Union market is investment. approximately 5.5 billion to £9.

Only a few hours after UK voted to leave EU.4 billion.7225 (Lawrence. . As a result. 4% Germany. accordance with World Trade Organization rules. Brexit also lead to the reduction of euro-based earning of European companies in UK. imports from countries within the EU is £221. the British pound would become weaker than others currency. 7% Belgium. 22% Sweden. 2000-2014 Next. 12% Italy. 5% France. 15% Luxembourg. Noble forecasted the whenever Brexit occurs. 2016). 2000-2014 Remaining EU-28. And finally. import tariff will be applied. 4% Poland. the exchange rate USD/GBP raised 0. 10% Netherlands. The Pink Book. 9% Spain. based on data from ONS. 2014.8 Share in EU inward FDI (%). especially US dollars. over half of the UK’s imports. Therefore when leaving EU. 9% Sources: UNCTAD and Citi Research Figure 3: Share in EU inward FDI (%). 3% UK.6685 to over 0. even the changes will be small but it somehow affects trading relationship between EU and UK.

2% to 6% (2016). the UK had 222 valid projects with a total registered investment 4. we are considering the two largest ones US and China.437 billion and is ranked 15th among 105 countries and territories investing in Vietnam. people might feel uncertain about the economy so they reconsider their spending. since the British pound’s weakness would affect the Euro. Moreover. the American companies and investors who invest money in UK and EU will likely to suffer from credit risks. Up to 2015. Considering the China market. there will be a significant loss for US market. Brexit seems to have slightly effects on China GDP. According to Forbes. according to Tim Smith (2016). Capital of British foreign investment focused primarily real estate . 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. the decrease of demand in EU leads to the decrease of GDP in China from 6. If the customers continue to cut down their spending. the consequences of Brexit somehow had impact on the citizen of United Kingdom and Europe. in terms of investment. For US.9 Figure 4: USD/GBP exchange rate variation over 90 days In terms of other markets.

accompanied by reduced savings and investments. Although Vietnam's exports to the UK accounted for only 3% of the total value of exports. reduce exports and trade surplus. Luong Van Khoi.7 billion and $ 3. . Britain's economic downturn will lead to a reduction in demand for commodities from Vietnam. equivalent to 15% of the export value of Vietnam in the EU area.65 billion in 2015. will make Vietnam's trade deficit to rise. Vietnam exported to the UK's super $ 1. economic growth in Britain fell. vice president of National Center for Socio Economic Information and Forecast. Separately first 5 months of 2016. more or less will affect the flow of capital from Britain in Vietnam. If the UK economy downturn. If Britain left the EU. The export turnover of Vietnam to the UK achieving compound growth (CAGR) of nearly 17% over the period 2008-15. According to Dr. do reduce the value of our trade surplus with the United Kingdom.10 sector and processing technology.9 billion in 2015. reaching a record US $ 4. Vietnam always has trade surplus to this market. the volume does not change when a large sterling devaluation will affect the value of our exports to the UK. Vietnam has maintained a trade surplus in the UK. the British pound depreciated even if our exports to Britain.

this is a long-term risk for Vietnam. 13 percent for Yen. investment and world commodity prices. and Euro diminished in the value. domestic gold price increased surprisingly and reached the price of 35. (Mai. Yen increased in value will make high public debt. it would quickly affect domestic general price and domestic gold price. the British pound decreased in value after this country voted to leave the European Union (EU). the structure of public debt in Vietnam includes 55 percent from Vietnam Dong. In June 6th. 2016) First of all. Its consequences will lead the Yen increased in value. The high government debt will make slow economic grow and create the burden on the state’s budget. Furthermore.5 to .11 In the long run. The increase in World gold price would result in the immediate increase in domestic gold price. 7 percent for Euro and 9 percent for other currencies. Indirect impacts of Brexit on Vietnam Brexit would have a significant indirect impact to Vietnam's economy through trade. This risk could increase because of the appreciation of the Yen. 16 percent from USD.

Global economic outlook will be bleaker after the results of the referendum in the UK. growth in emerging economies in Asia. The stock market in Vietnam decreased 11. the Vietnam market will encounter with many disadvantages. In particular. will have some fluctuations.9 million VND higher than the initial price before Brexit’s final result. in the context of Vietnam's economy increasingly deeper integration with the world economy. many experts believe that VN-Index is mainly affected indirectly by the volatility of the global stock market. This price is also the highest price recorded since August 2015. which is 1.77 after Brexit vote.12 35. but the indirect impact is significant.9 million VND per ounce. including Vietnam will probably go lower in the coming months.5 points about 1. In the case the UK withdrew from the European Union (EU). direct impact of proposed referendum on United Kingdom membership of the European Union to Vietnam is not considerable.85 percent to 620. known as Brexit. which will create the investor’s panic rather than the . despite the immediate. However. With global growth prospects reduced. However. the stock market is the place where unexpected results are not favored by investors.

BREXIT: the impact on the UK and the EU. Besides. Retrieved from Bnews.vn. When the global market is stable. (2016. (2016. N. UK … will move their money from Vietnamese market to traditional market to avoid the risks. June 24). (2015). In Vietnam. O. June 24). having commercial relations with European Union (EU) such as footwear.vn: http://bnews. 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. (2016. In addition. 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. Mai. Conclusion To sum up. coffee…. VARDAKOULIAS. Global Counsel.bbc. the shift of indirect capital flows is one of the reasons that impact Vietnamese stock market.org/blog/entry/brexit-the-immediate-risks .html Business. Brexit may also have indirect impact on the enterprises. the foreign capital flows will limit investment on the potential risks market like Vietnam and the foreign investors including EU. which might fear many investors. Pound plunges after Leave vote.com/news/business-36611512 Irwin. Brexit sẽ tác động thế nào tới kinh tế Việt Nam. The Vietnamese government should have appropriate plan to improve the economy and make the market more stable. Retrieved from The NEF: http://www. Vietnam will prevent these impacts and become the attracting destination for capital inflows.13 negative influence of Brexit on Vietnam. June 24). Retrieved from BBC: http://www. (2016). G. Brexit: the immediate risks.neweconomics.vn/nhung-he-qua-truoc-mat-cua-viec-anh-roi-eu/18448. Reference Bnews. Những hệ quả trước mắt của việc Anh rời EU.

html Nguyen Mai (2016.html? utm_source=search_vne .net/tin-tuc/vi-mo/bo-truong-ke-hoachamp-dau-tu-brexit-anh-huong-ty-gia-chung-khoan-viet-nam-3428630. June ) Brexit sẽ ảnh hưởng tới Việt Nam thông qua các kênh thương mại và đầu tư: Retrived from http://tapchitaichinh. June ).vnexpress.vn/nghien-cuu--trao-doi/trao-doi-binh-luan/brexitse-anh-huong-toi-viet-nam-thong-qua-cac-kenh-thuong-mai-va-dau-tu-84675.html Nguyen Chi Dung (2016.14 Luong Van Khoi (2016. Brexit ảnh hưởng tỷ giá. June) Brexit sẽ tác động thế nào tới kinh tế Việt Nam : http://baodautu.vn/brexit-se-tac-dong-the-nao-toi-kinh-te-viet-nam-d47443. chứng khoán Việt Nam: Retrieved from http://kinhdoanh.