The world is shocked! More than half of the Brits voted in favor of Brexit (Britain Exit). After four decades since the last referendum in 1975, the UK has at last opted to leave the European Union (EU). But who cares if they will not be part of the EU any longer? Will it influence the Philippine stock market? In this article I will talk about how it can affect us and what can we do to prevent losing money from our investments.
Before we jump into the main topic, let me give you some fundamental background about Brexit in case you’re not acquainted with it.
The European Union
EU is a union composed of 28 member states in Europe which include countries like Germany, France, Italy, and obviously the United Kingdom among others. The original purpose of the union is to unite the European countries in order to prevent them from waging war against each other. They have witnessed the devastating consequences of the World War II and they don’t want that to happen again. From the economic point of view, the EU aims to create a superpower that will rival the world’s largest economies such as the United States.
Why the Great Britain Wanted to Leave the EU?
In 2014, Prime Minister David Cameron as well as most of the Brits were angered by the EU Commission's mandate requiring the UK to make extra contribution to the EU budget. The reason? The UK posted a better economy compared to the rest of the EU member states, so it has been asked to pay more in order to compensate the poor performance of other countries. A significant portion of that amount would be given to France and Germany which did not perform well during the year despite being two of the largest EU countries. The Brits said it’s absolutely unfair!
In the recent years, the UK has been swamped by a high number of immigrants mainly from the poor EU countries such as Romania and Poland. A number of Britons have been reprimanding these migrants for the expanding rate of unemployment in the UK. They accuse them of taking away their jobs and getting benefits from the government.
There are more other reasons but the ones I mentioned above are the most obvious. Nonetheless, it all boils down to one thing, the UK wants to be independent. Majority of the people think that the Great Britain is better off without the EU.
Impact of Brexit on the Philippine Economy
To answer this, the first question that came to my mind was 'how is the Philippines related to the UK’. I can think of two things: trade and OFWs.
Let’s state some facts. In 2014, only 0.80% of the total Philippine exports went to the UK. The export value amounted to only $638M. The UK is not in the top 10 export destinations; we have a very minimal trade exposure with them. So in terms of trade, it is unlikely that Brexit has direct impact on our country’s revenue.
In terms of labor export, the OFW (Overseas Filipino Workers) remittances from the UK was about $1.54 billion, accounting to 5.97% of the total OFW remittances in 2015. If the pound currency continues to drop, this may affect the total OFW revenue.
However, financial experts believe that the impact would be just temporary and that the Philippines has a strong fundamentals that is resilient to such crisis. In addition, major financial institutions are likely to control the effect of Brexit, reducing the indirect impact to the Philippines and other Asian nations.
Effect of Brexit on Stock Market
It was a bloodbath on Friday after the majority of the Britons voted to exit the EU. The PSEi dropped by -1.29%. My stock portfolio was down by about P15K. The global market was unquestionably rattled. I was actually saddened, but upon looking at the table below I realised that PSE is one of the least affected on Friday. This signifies something positive about the resilience of the Philippine stock market.
What To Do With Your Investments Amid Brexit
Uncertainty still prevails. Many investors fled away from the high-risk investments such as the stock market last Friday resulting in plummet of most major stock exchanges worldwide.
This is not the first time. Everytime there is a shocking news of global interest, a panic in stock market always occurs. Will you buy or sell? You have to stop and think carefully before you make the next move. Consider the points I have mentioned above. Do you think that the sudden drop in stock prices is just a result of a temporary shock? Are you going to follow the crowd and start selling your positions at loss with the hope of avoiding further losses?
If you are going to ask me, I will not sell. I believe that it’s just about time for the market to balance the equilibrium again. This may take days, weeks, or months. But since it is unlikely that Brexit will have direct impact on the Philippine economy, I will keep invested on stocks. In fact, I have just prepared some additional buying powers that are ready for deployment soon.
I am excited to see what will happen to the market this week.
What’s in your mind? Leave a comment below.