The U.K.'s decision to leave the European Union is unlikelyto have a significant credit impact on Asia-Pacific sovereigns given that theregion's direct trade linkages with the U.K. are generally limited, accordingto Moody's.
The rating agency said July 11 that most Asia-Pacificsovereigns have limited reliance on exports to the U.K. While lower GDP growthin the U.K. could lower demand for global products, such a scenario is unlikelyto have a significant impact on trade or GDP growth in the Asia-Pacific region.
However, Moody's pointed out that potential marketvolatility stemming from Brexit will likely affect Asia-Pacific sovereigns thatdepend on external financing. Mongolia, for instance, partly relies on privatesector financing flows. Sri Lanka and Mongolia both have significant debtrepayments in 2016 and severe market volatility could increase balance ofpayment pressures for the two countries.
Meanwhile, Moody's is uncertain about the impact offinancial flows into Asia from the U.K. and other European banks. Hong Kong,and to a lesser extent Singapore, may be exposed if financing flows from theU.K. or European banks slowed but these two financial centers stand to benefitif the U.K. or European banks aim to diversify their asset bases.
For Japan, Brexit and its potential impact is a creditnegative due to significant flows into safe havens. A sustained rise in the yenwould lower Japan's GDP growth and inflation. While Hong Kong would also feelthe impact of a stronger U.S. dollar, the government's strong fiscal positionwould offer some easing room, Moody's added.