Brexit is Real, Britain Leaves the European Union, Global Impact
Indonesian assets are under pressure on Friday (24/06) due to the exiting of the United Kingdom from the European Union (EU). After votes of yesterday's referendum were counted the so-called "Brexit"is a reality. Nearly 52 percent of the 16.1 million voters chose to depart from the EU. Shortly after the news UK Prime Minister David Cameron announced he is to step down in October. Meanwhile, global financial markets are in deep red territory as investors are in search of safe haven assets such as the US dollar, Japanese yen, Swiss franc, and gold.
No member has ever exited the European Union and therefore global markets were plagued by a high degree of uncertainty prior to the referendum. When it became gradually clear during the counting process that the 'leaving camp' was on the upper hand, global markets sank in deep red. Japan's Nikkei 225 index lost nearly 8 percent as the yen (a safe haven asset) strengthened considerably - some 3 percent - against the US dollar. Japanese authorities expressed their readiness to intervene
The pound sterling was one of the biggest victims today, depreciating over 10 percent against the US dollar (touching a three-decade low) before recovering slightly in the afternoon. But at 15:45 pm local Jakarta time the sterling was still down 6.34 percent against the US dollar. Similarly, the euro has been weakening over 2 percent against the US dollar today as the Brexit causes concern about the Eurozone economy now one of the larger economies breaks away. Moreover, the exit causes uncertainty about the strength and future of the European Union.
UK Prime Minister David Cameron, who campaigned to remain part of the EU, announced that he will step down in October. Rival Boris Johnson (Conservative Party) is tipped to seek the job of prime minister. Johnson, former mayor of London, became the face of the 'leave camp'. Bookmakers say he is favorite to succeed Cameron. It will require some two years of proceedings before the divorce between Britain and the EU is completed. It is up to Cameron's successor to officially launch the exit process.
Indonesian assets joined the global sell-off. However, losses were not that steep compared to losses in other countries. The Indonesian rupiah depreciated 1.08 percent to IDR 13,391 per US dollar on Friday (24/06) based on the Bloomberg Dollar Index. Earlier on the day the rupiah had fallen above the IDR 13,500 per US dollar level.
The same pattern was seen in the performance of the Jakarta Composite Index. Initially, amid severe concerns and uncertainty, the index plunged over 2 percent. However, when the Brexit was confirmed emotions somewhat eased and the index started to recover. At the end of the trading day the Jakarta Composite Index had lost a "mere" 0.82 percent to finish at 4,834.57 points.
The impact of Brexit on Indonesian assets is expected to be brief and it is also unlikely that the Brexit will impact on Indonesia-UK trade relations.