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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



Group Number


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 – 0121 288 3731


1846 words

Due Date

August 27th, 2016

Date Submitted

August 27th, 2016

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Nguyen Thi Thuy Linh .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.

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. . 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 (VARDAKOULIAS. therefore this event has also significant influence on Vietnamese economy and financial markets as well. 2016). 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 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.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. This report will shed light on how Brexit affect the international and Vietnamese financial markets. . The value of the British Pound is currently plummeting.

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

according to the forecasts of many experts. 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. US. leading to a loss of 6% General Domestic Product (GDP) in 2020.6 Figure 2: FTSE 100 fall as trading opens after Leave vote. and cut off all benefit to preferential rights in society. A worse scenario is that countries such as Germany. Not only weaken the economy. France.. etc. Japan.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. 2016) may fall into unemployment. Investors are no longer interested in the UK market because of this country no longer enjoy the benefits of the thereby pushing the alliance to stand before the risk of disintegration. 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. also have the ability to separate from the EU after its supporters to leave the EU in England won. More than 2. 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.) . Meanwhile. 2016). and Spain .. Brexit may also entail the risk that British society becomes unstable.

The United Kingdom annually receives the largest amount of EU’s foreign direct investment accounting for 21% in the 2000-2014 periods. such as Germany. The second impact of Brexit on the European Union market is investment. will be required to fulfil the vacancy by contributing additional amount unless there is a cut down on EU expenditure. which is accounted for £8. 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.5 billion.7 Before the occurrence of Brexit event. especially the EU. If UK loses the potential of being the gateway to access EU. 2015). The consequence of this is the other members of EU. trade and currency.5 billion to £9.the largest member. The first significant loss of EU is the annual net contribution of UK. investment. approximately 5. the investment obviously would pour in other EU members. .8% EU expenditure (Irwin.

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

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

do reduce the value of our trade surplus with the United Kingdom. Separately first 5 months of 2016. Luong Van Khoi.7 billion and $ 3.65 billion in 2015. accompanied by reduced savings and investments. If the UK economy downturn. will make Vietnam's trade deficit to rise. .10 sector and processing technology. the volume does not change when a large sterling devaluation will affect the value of our exports to the UK. Vietnam exported to the UK's super $ 1. Vietnam has maintained a trade surplus in the UK. reaching a record US $ 4.9 billion in 2015. equivalent to 15% of the export value of Vietnam in the EU area. Although Vietnam's exports to the UK accounted for only 3% of the total value of exports. Vietnam always has trade surplus to this market. economic growth in Britain fell. vice president of National Center for Socio Economic Information and Forecast. The export turnover of Vietnam to the UK achieving compound growth (CAGR) of nearly 17% over the period 2008-15. Britain's economic downturn will lead to a reduction in demand for commodities from Vietnam. According to Dr. the British pound depreciated even if our exports to Britain. If Britain left the EU. more or less will affect the flow of capital from Britain in Vietnam. reduce exports and trade surplus.

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

known as Brexit.9 million VND per ounce.85 percent to 620. despite the immediate.12 35.9 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. In the case the UK withdrew from the European Union (EU). will have some fluctuations. the Vietnam market will encounter with many disadvantages. However. With global growth prospects reduced. However. direct impact of proposed referendum on United Kingdom membership of the European Union to Vietnam is not considerable. The stock market in Vietnam decreased 11. which is 1. including Vietnam will probably go lower in the coming months. growth in emerging economies in Asia. This price is also the highest price recorded since August 2015. Global economic outlook will be bleaker after the results of the referendum in the UK. many experts believe that VN-Index is mainly affected indirectly by the volatility of the global stock market. which will create the investor’s panic rather than the .5 points about 1. the stock market is the place where unexpected results are not favored by investors. In particular.77 after Brexit vote. but the indirect impact is significant.

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

chứng khoán Việt Nam: Retrieved from Nguyen Mai (2016.html? utm_source=search_vne .html Nguyen Chi Dung ( June ) Brexit sẽ ảnh hưởng tới Việt Nam thông qua các kênh thương mại và đầu tư: Retrived from http://tapchitaichinh. Brexit ảnh hưởng tỷ giá.14 Luong Van Khoi (2016.vnexpress. June ). June) Brexit sẽ tác động thế nào tới kinh tế Việt Nam : http://baodautu.