BREXITS IMPACTS ON MALAYSIA

TRADE

When the result was announced, other than the plunging currency, world oil prices also
tumbled by more than 6%. Experts opine that the reason why the world oil prices took a
tumble could be due to risk aversion more than fundamentals.

In Asia, Tokyo stocks slid by more than 8% and Japans Finance Minister Taro Aso called an
emergency news briefing.

However, according to Credit Suisse in a report in the New Straits Time prior to the
announcement of the referendum result, Asian exports do not rely heavily on UKs demand.
Therefore, any direct impact on the regional economies ex-Japan would likely be small with
the exit from the EU.

This is because the bilateral trade significance between UK and Malaysia has declined since
the 1990s. Year-to-date, the UK has only contributed 1.1% to Malaysias total trade and
ranked 17th out of 240 trading partners.

Businesses that may be vulnerable to Brexit are commodity and business processing exports,
said economists Dr Santitarn Sathirathai and Michael Wan. Malaysia, along with Thailand
and Vietnam, are agricultural and processed food exporters to the UK, while Malaysia and
Vietnam also export mining products.

The exit could result in Britain being less attractive export destinations in the eyes of
Malaysian businesses, due to the possible weaker economy. This remains to be seen.

However, the sliding currency could mean cheaper British products for Malaysians.

Total Trade by Major Countries, January 2016, percentage shares

Source: Department of Statistics Malaysia

TOURISM

In uncertain economic times, one of the luxuries that people let go of, is vacation. In 2015,
we saw the arrival of 401,019 tourists from the UK, while in the first quarter of 2016, we saw
a hike in that number by about 2.4% compared with the same period last year.

As the summer holiday in the UK approaches, will we be seeing an influx of British tourists
to Malaysia?

This can be unlikely, as the British are assumed to be more careful with their finances,
especially with falling currency, and hence foregoing long vacations.

We can expect a lower number of tourists from the UK in the coming months, but it probably
will not affect tourism revenue in Malaysia significantly as the majority of the tourists
coming to Malaysia are from the Southeast and Northeast Asia regions.

Brexit was hailed by Nigel Farage, the leader of the UK Independence Party (UKIP), as the
UKs independence day. Though experts do not foresee drastic change for Malaysia, things
are not expected to be rosy in the UK.
The IMF predicted the worst-case scenario could see the British economy sink into recession
next year, and the overall economic output to slide 5.6% lower than the 2019 forecast, and
unemployment to rise above 6%.

In this unprecedented moment, Britain will be the first country to exit the EU, since its
formation. However, the referendum would not be an automatic exit for Britain as a member.

The exit process will probably take a minimum of two years, with Leave campaigners
suggesting during the referendum campaign that it should not be completed until 2020
when the next scheduled general election will be held.

Whether Britain will really benefit from its exit from EU will remain to be seen, but it is
likely that any direct impact on Malaysia would be minimal.

OUTWARD INVESTMENT TO THE UK

Due to the UKs popularity with international students, many Malaysian property investors
are looking to invest in student accommodation in the UK.

Table 1 : International Students in UK 2014-2015

Source: UK Council for International Students Affairs

Non-EU students in HE

Higher degree (research) 29,565 2,850 32,415

Higher degree (taught) 108,875 10,285 119,160

Postgraduate other 3,145 3,570 6,690

First degree 135,695 3,625 139,320

Other undergraduate 6,750 7,670 14,425

Total non-EU 284,010 28,000 312,010

In fact, Malaysians make up one of the biggest investors in the property market in the UK,
especially institutional investors such as the Employees Provident Fund, Retirement Fund
Inc. (KWAP) and Armed Forces Fund Board (LTAT).

According to Virata Thaivasigamony, director of Cornerstone International Properties, a

property real estate investment firm, 73% of overseas Malaysian property investors in 2015
have gone into purpose-built student accommodation (PBSA) due to its 8% yields.

However, with the risk of recession post-Brexit as predicted by the International Monetary
Fund (IMF), experts are worried that the faltering economy would badly affect property
prices, thereby hindering the ability to construct more homes, and also allowing overseas
investors to buy property at a lower value.

This could be good news for new Malaysian property investors with holding power, who are
looking to break into the UK property market. With the lower currency exchange rate and
also lower housing prices, it could be time for these investors to start shopping for a good
buy.

However, if this does happen, it will not be favourable to existing property owners. In light of
the possible recession, property investment can be difficult, either in rental or in sale.

INWARD INVESTMENT FROM THE UK

In quarter one of this year, the UK contributed RM1.9 billion of foreign direct investments
(FDI) or 9.3% of the total FDI stock. We saw an increase of 54.1% compared with the same
period last year.

In the same quarter, the EU was the largest contributor to Malaysia at RM30.3 billion (39.0%
of total FDI stock), a rise of 21.8% from last years figure.

Experts do not expect Brexit to affect the FDI in Malaysia, as it involves medium- to long-
term factors. However, MIDF Research predicts that it will significantly impact portfolio
investments like stocks, bonds, treasuries in the short term.

We opine that Brexit has marginal impact on the economic fundamentals of Malaysia but
more on financial markets due to negative sentiment. In the wake of Brexit, investors have
fled to safety, which means the dollar, yen and bunds (German bonds), causing yield to
plummet, MIDF told The Sun Daily. This can already be seen with the performance of the
stock market, where we saw a large net outflow of portfolio capital for the past eight weeks,
averaging above RM1.0 billion.

TERTIARY EDUCATION

The UK remains one of the top education destinations for Malaysians, and the world in
general. According to UNESCO statistics, the UK is ranked #2 in the top 20 countries for
international students, with a total of 427,686 international students.

Which are the top 20 countries for international students?

Source: UNESCO Institute for Statistics, July 2014
Destination country Total number of students
1 US 740482
2 UK 427686
3 France 271399
4 Australia 249588
5 Germany 206986
6 Russia 173627
7 Japan 150617
8 Canada 120960
9 China 88979
10 Italy 77732
11 South Africa 70428
12 Malaysia 63625
13 South Korea 59472
14 Austria 58056
15 Netherlands 57509
16 Spain 55759
17 United Arab Emirates 54162
18 Singapore 52959
19 Egypt 49011
20 Saudi Arabia 46566

Malaysians are attracted to tertiary education in the UK, which contributes to the rise in
property investment in the country.
Though Brexit will unlikely affect the quality of the education offered to students, the sliding
sterling can be beneficial to many parents who are paying for tuition fees in Sterling that
was about 6 times to the Malaysian ringgit last month.

At the time of writing, the ringgit was at 5.5586 to the pound. If the currency continues to
slide, Malaysian parents may be able to gain a respite from the sliding ringgit.

Table 2 : Top Non EU Countries sending students to UK

Source: UK Council for International Students Affair

Country 2014-15 2013-14 2012-13

China (PRC) 89,540 87,895 83,790

India 18,320 19,750 22,385

Nigeria 17,920 18,020 17,395

Malaysia 17,060 16,635 15,015

United States of America 16,865 16,485 16,235

Hong Kong (Special Administrative Region) 16,215 14,725 13,065

Saudi Arabia 8,595 9,060 9,440

Singapore 7,295 6,790 6,020

Thailand* 6,240 6,340 6,180

Pakistan 7,295 6,665 7,185

BRITISH PENSIONERS IN MALAYSIA

Ranked as one of the top 7 best places to retire by the InternationalLiving.com, Malaysia is
one of the most popular destinations in Asia for expats and retirees from the UK.

The Malaysian government has been welcoming expats for long-term stays in the country,
with the My Second Home (MM2H) programme launched in 2002.

Since its launch, the programme has encouraged almost 20,000 expats to settle in the former
British colony. The MM2H has no age restriction, which makes it a popular long-term visa
for retirees.

The British state pension system allows pensioners to receive their pension abroad. Although
the pension paid is not subject to income tax in Malaysia, it is still affected by the currency
volatility.

With the possibly continuous downward slide of the sterling pound due to Brexit, British
Table 3: Top 10 countries involved in MM2H
pensioners in Malaysia can expect a much smaller retirement income moving forward.
Source: www.mm2h.co