The UK has voted itself out of the European Union and is nearing a life without the 28-member union, the largest trading bloc in the World.
Gulf Co-operation Council (GCC) policymakers have generally sounded confident the overall Brexit impact on Gulf economies will be muted.
Qatari banks face “immaterial net exposures” to Brexit-related currencies such as the pound and euro, according to QNB Financial Services. A prolonged period of a low interest rate regime, in view of Brexit, should be positive to GCC economies, says Global Investment House.
The bilateral trading landscape between the GCC and the UK as well as the EU may not necessarily be altered by Brexit, according to experts. The EU has been unable to reach a free trade agreement with the GCC since 1988. It may now be possible for the UK, which last month signed a double taxation avoidance deal with the UAE, to strike beneficial trade deals with Gulf governments.
But the “biggest jolt since the fall of the Berlin Wall” that erased about $3tn from global equity values last Friday, should be a longer-term concern for Gulf investors.
Sovereign and private investors from Qatar, Saudi Arabia, Kuwait and the UAE have been prolific buyers of British assets in the past decade but they are holding back now over fears of a property price slump over Brexit. Qatar is one of the most high-profile investors in London property. The Qatar Investment Authority has at least $7bn directly invested in equities traded on the London stock Exchange, in which it also holds a 10.3% stake. Qatar’s total investments in Britain are worth around £30bn ($44bn), according to a Financial Times report.
Gulf funds may shun the UK with Brexit becoming a reality, according to the Institute of International Finance (IIF). A UK exit would also hit GCC companies with high exposure to the UK through multiple channels, the IIF said.
Longer term, GCC investments in the UK as well as Europe are mainly keeping line with the futuristic strategy of economic diversification. Total assets acquired by GCC private investors and sovereign funds in the EU are estimated at more than €400bn, according to a 2015 estimate. A Brexit-induced slowdown in the UK as well as Europe could affect Gulf investments in the continent; a perceived fall in demand for oil, the national lifeline of most Gulf states, could be another worry.
While the post-referendum plunge in the pound may look UK assets cheaper for Gulf buyers, the nosedive could also bring down valuations of pound-denominated Gulf assets in the UK.
Britain has now lost its gold-plated AAA rating, following the Standard & Poor’s downgrade; and the pound has hit a new 31-year low against the dollar. But the Brexit impact will largely be determined by the policies adopted by a country to deal with the contagion.
Brexit is becoming a reality (despite the theoretical possibility of a second UK referendum on EU membership). The Gulf needs to plan for an EU sans the UK.