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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.

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

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

and cut off all benefit to preferential rights in society. 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. according to the forecasts of many experts. by more than half of UK exports is destinations are the EU countries. and Spain . Brexit may also entail the risk that British society becomes unstable.vn. Meanwhile. 2016) may fall into unemployment.6 Figure 2: FTSE 100 fall as trading opens after Leave vote. A worse scenario is that countries such as Germany. the UK need large amounts of foreign currency to pay for import operations. etc. More than 2.2 million Britons are living and working in the EU countries (VARDAKOULIAS.) . The impact of Brexit on UE’s market and others (such as China. US. thereby pushing the alliance to stand before the risk of disintegration. France. 2016). 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. This will be one of many reasons to push the British economy into recession in the long term.. contributions from 4% to 5% of GDP (Bnews.. leading to a loss of 6% General Domestic Product (GDP) in 2020. also have the ability to separate from the EU after its supporters to leave the EU in England won. Japan.

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

12% Italy. 5% France. especially US dollars. 2000-2014 Next. 2000-2014 Remaining EU-28. . 2016). 15% Luxembourg. 3% UK. 7% Belgium. 2014. import tariff will be applied.6685 to over 0. over half of the UK’s imports. the exchange rate USD/GBP raised 0. even the changes will be small but it somehow affects trading relationship between EU and UK. 22% Sweden. 9% Spain. imports from countries within the EU is £221. accordance with World Trade Organization rules. 9% Sources: UNCTAD and Citi Research Figure 3: Share in EU inward FDI (%). the British pound would become weaker than others currency. 4% Germany.4 billion. As a result. 10% Netherlands. Noble forecasted the whenever Brexit occurs. The Pink Book. 4% Poland. And finally.7225 (Lawrence. Only a few hours after UK voted to leave EU.8 Share in EU inward FDI (%). Brexit also lead to the reduction of euro-based earning of European companies in UK. Therefore when leaving EU. based on data from ONS.

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

accompanied by reduced savings and investments. the volume does not change when a large sterling devaluation will affect the value of our exports to the UK. According to Dr. The export turnover of Vietnam to the UK achieving compound growth (CAGR) of nearly 17% over the period 2008-15.10 sector and processing technology. Vietnam always has trade surplus to this market. If Britain left the EU. Separately first 5 months of 2016. will make Vietnam's trade deficit to rise. vice president of National Center for Socio Economic Information and Forecast. reduce exports and trade surplus. the British pound depreciated even if our exports to Britain.7 billion and $ 3. reaching a record US $ 4.9 billion in 2015. Vietnam exported to the UK's super $ 1. 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. economic growth in Britain fell.65 billion in 2015. more or less will affect the flow of capital from Britain in Vietnam. do reduce the value of our trade surplus with the United Kingdom. Luong Van Khoi. Although Vietnam's exports to the UK accounted for only 3% of the total value of exports. . Vietnam has maintained a trade surplus in the UK. If the UK economy downturn.

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

will have some fluctuations.85 percent to 620. including Vietnam will probably go lower in the coming months. known as Brexit. The stock market in Vietnam decreased 11.9 million VND higher than the initial price before Brexit’s final result. the Vietnam market will encounter with many disadvantages. Global economic outlook will be bleaker after the results of the referendum in the UK. In particular. With global growth prospects reduced. which is 1. direct impact of proposed referendum on United Kingdom membership of the European Union to Vietnam is not considerable. However.77 after Brexit vote. the stock market is the place where unexpected results are not favored by investors.9 million VND per ounce. growth in emerging economies in Asia. However. This price is also the highest price recorded since August 2015. in the context of Vietnam's economy increasingly deeper integration with the world economy. In the case the UK withdrew from the European Union (EU).12 35. despite the immediate. which will create the investor’s panic rather than the . many experts believe that VN-Index is mainly affected indirectly by the volatility of the global stock market. but the indirect impact is significant.5 points about 1.

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

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. June ) Brexit sẽ ảnh hưởng tới Việt Nam thông qua các kênh thương mại và đầu tư: Retrived from http://tapchitaichinh.html? utm_source=search_vne .vnexpress. June) Brexit sẽ tác động thế nào tới kinh tế Việt Nam : http://baodautu.html Nguyen Mai (2016.vn/brexit-se-tac-dong-the-nao-toi-kinh-te-viet-nam-d47443. June ). chứng khoán Việt Nam: Retrieved from http://kinhdoanh.net/tin-tuc/vi-mo/bo-truong-ke-hoachamp-dau-tu-brexit-anh-huong-ty-gia-chung-khoan-viet-nam-3428630.14 Luong Van Khoi (2016. Brexit ảnh hưởng tỷ giá.html Nguyen Chi Dung (2016.