Nomura Research believes that the Breixt decision is likely to push Hong Kong into an outright recession (-0.2%) in 2016, compared to our previous forecast of low GDP growth of 0.8%.
Hong Kong's merchant exports to the UK and the rest of EU accounted for 14% of GDP in 2015, the highest in Asia. Given the Brexit, the research house expects USD to remain strong, and therefore, given the peg, so to HKD.
A stronger real effective HKD is likely to have a negative impact on Hong Kong's tourism and retail sales (especially if it means a weaker RMB).
UK banks' claims to Hong Kong are equivalent to 2.6% of Hong Kong's GDP, the second-highest in Asia after Singapore (3.4%). Uncertainty over the global financial markets and the domestic economy is likely, Nomura estimated, to reduce financial transaction volumes significantly, which is a major negative for the financial sector.
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