The UK’s vote to leave the EU is not expected to have a significant direct impact on emerging markets in macro-economic terms. However, the UK is an important trading partner, a source of investments and provider of funding for many emerging markets.
Furthermore, the indirect effects from lower economic growth in the EU following Brexit, may have broader effects on emerging markets.
But Brexit also creates an opportunity for EMs, as it presents an opportunity for structural reforms that could strengthen the competitiveness of those economies. This would require bold action by EM authorities, fiscal discipline and an ability to manage financial market volatility.
In light of this, corporates should effectively adapt their strategies to the new status quo after the UK leaves the EU. A starting point would be their financial market exposure. EM companies that are exposed to higher market risk should use risk management tools and hedge against Brexit related risks.
In terms of trade, firms would do well exploring new opportunities to diversify their trade both in terms of products, as well as end markets.
And for funding, companies that are dependent on external borrowing should consider changing their financing structure to minimise their Brexit related external exposure.
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