Sterling's decline to multi-year lows against the Singapore dollar in the wake of Britain's decision to leave the European Union has presented big questions for companies, individuals, and investors. Channel NewsAsia assesses who might stand to lose or gain in the current conditions.
SINGAPORE: Money changers across the country ran out of pounds as investors, students, and holiday-makers sought to cash in on a weak sterling on Friday (June 24). The pound, which has fallen 11 per cent against the Singapore dollar so far this year on Brexit fears, crashed to a multi-year low of around S$1.80 when it became clear those fears would become reality. When Channel NewsAsia visited Change Alley at Raffles Place, money changers including Raffles Money Change, China Money Exchange, Mohamed Thahir Exchange, and City Money Changer had run out of sterling by 3pm on Friday.
A crowd gathering around Arcade Money Changers at Raffles Place on Jun 24, 2016. (Photo: Wendy Wong)
It was a similar story elsewhere in the Bugis area, according to 25-year-old Tan Yenfang, who is starting a masters degree programme in the UK this September. “I went to five money changers around my workplace and they all said there's no stock,” she said.
Others, like Ms Chew Hui-Yan, second year student in University College London, said her parents managed to buy pounds via the bank. “My parents bought 10,000 pounds once they heard the pound was falling. I have another friend whose mum was also changing money as the pound fell," said Ms Chew.
Beyond a potential short-term buy opportunity, the weak pound creates new dynamics for people travelling to, working in, and doing business with the UK.
COMPANIES & MARKETS
Singapore companies with significant investments in the UK include property developers City Developments and Ho Bee, and transport group ComfortDelGro. According to Mr Gabriel Yap, executive chairman at investment firm GCP Global, the sliding pound would mean currency losses for these Singapore firms.
“I think the impact mainly will be in the translation losses from earnings for those that have invested in the UK. These firms invested in assets in the UK when the pound was significantly pricier,” he said.
“Their earnings translated back to Sing dollars this coming year will be significantly affected. The uncertainty of that will also wreck havoc on their share prices.”
Still, CDL struck a positive note, saying that the company continues to have confidence in the long-term fundamentals of the UK economy and its strategy of targeting predominantly UK nationals for its residential developments. It added that it has a strategy to deal with exchange rate uncertainties: "The Group manages its foreign exchange exposure by a policy of a matching receipts and payments, and asset purchases and borrowings in each individual country, so as to create a natural hedge".
Describing the situation as “uncharted waters”, Singapore International Chamber of Commerce chief executive Victor Mills said he expects volatility in the global markets to continue until clarity of the UK’s exit terms are known. This a matter which could easily stretch out over the next two years at least.
“I think the result of the referendum will be mainly negative for the UK in the mid to long term. The issue of membership of the European Union was hijacked by the immigration debate which, as we all know, is an emotive issue everywhere and usually for all the wrong reasons,” he added.
Travel agency Chan Brothers said that should the pound continue to weaken against the Sing, already-strong demand for travel to the UK “looks set to continue”.
“The British pound has been falling steadily against the Singapore dollar since August 2015. This is definitely a boon for travel,” said Ms Jane Chang, its head of marketing communications, adding that the agency has so far seen a 30 percent year-on-year growth in demand for travel to the UK.
Travel booking companies Wego.com and TripZilla.com said they saw the developments as a positive for UK-bound Singapore travellers, but a negative for Singapore’s tourism market in the short run.
“As a destination, Singapore welcomes a large number of UK travellers and serves as a gateway to the rest of Asia. There may be a slight drop in UK visitors initially,” said Mr Ross Veitch, CEO and co-founder of Wego.com.
“We expect there will be a overall drop in inbound tourists from the UK due to weakness in pound and uncertain economic impact of the Brexit. The UK makes up almost 30 per cent of Singapore's inbound travellers from EU, so we would certainly feel some impact,” said Ms Winnie Tan, CEO, TripZilla.com.
Ms Tan was a shade more circumspect about the numbers of Singaporean tourists looking to take advantage of the cheaper pound.
“We do not expect the number of bookings to skyrocket overnight. Again, drawing comparison to what happened when the Australian dollar fell below parity versus the Sing recently, it will take a while for travellers to react and travel bookings to pour in.”
As the dust settles on the Referendum result, and officials start to negotiate the exit plan, there will be uncertainty over the next two years, said Mr Ku Swee Yong, the CEO of property agency Century 21 Singapore. This could hurt London’s appeal to international property investors and absentee landlords.
“The uncertainty could result in corporate considerations, like to shore up cash by downsizing the workforce. This could hit those in trading-related activities, in commodities. And this will affect rents, especially in London,” said Mr Ku.
“With the decision to exit the European Union, for existing Asian property owners, the fall in the pound will impact the repatriation of any income returns, as well as the gains on any disposal,” said Mr Nicholas Holt, head of research for Asia Pacific at Knight Frank.
“Although there is likely to be more volatility in the market, ultimately most investors are looking to the long term – so will continue to hold their assets, in the hope that any short-term instability will eventually subside when more clarity of the UK’s role in Europe is determined."
Meanwhile, Colliers International said the UK’s economic fundamentals remained unchanged despite Brexit.
We consider buying opportunities "ripe" for Asian investors, said Mr Richard Levene, Director, International Properties, Colliers International. “This also creates an excellent opportunity for our international buyers to benefit from currency gains as the pound strengthens over time.”
The exchange rate implications would also be felt on salaried professionals working in Singapore and the UK. Architect Leanne Taylor, 27, who earns in Sing dollars, has mixed feelings.
The British national, who has been working in Singapore for more than two years, said Brexit has led her to reconsider plans to move back home.
“On one hand, maybe it's a good time to go back and buy a house. On the other, architects like me may not be able to access the EU market and tender for work, and that’ll mean fiercer competition for local work,” she said.
“If I were still in the UK, I wouldn't be too happy. On a US dollar basis, income would have dropped 5 to 10 per cent and taxes are still sky high, at 30 to 40 per cent,” said a Singaporean banker who declined to be named. He recently relocated home after two years in London.
“Some of my colleagues, especially those who have invested in real estate, are reeling from the sterling plunge. The property market is relatively more illiquid, with more transaction costs,” said the 29-year-old.
As for London-based Singaporean Edna Goh, 29, she is less concerned about the dollars and cents of it all.
The finance professional, who has lived in London for the last seven years said: “To me, it's not about the money. It's about how London is becoming less tolerant to immigrants. It's very upsetting given that London is London because of the EU.”