Hong Kong listed stocks with UK profit centres see further falls in wake of Brexit

PUBLISHED : Monday, 27 June, 2016, 11:33am
UPDATED : Monday, 27 June, 2016, 11:33am

UK-linked stocks dropped further in early trading in Hong Kong on Monday as markets continued to respond to Thursday’s vote by Britons to leave the European Union.

“Without European union membership I expect that British economy will struggle, which will mean all companies exposed to the UK will suffer,” said Louis Tse, director at VC brokerage.

Shares in CK Hutchison dropped by 3.68 per cent in early trading Monday.

“We think the recent decline in the share price may be a knee jerk reaction to Brexit,” said a report from US investment bank Jefferies, adding that “we estimate that some 40 per cent of CK Hutchison’s 2016 consolidated EBIT (earnings before interest and tax) comes from the UK”.

However, on Monday morning Moody’s investor services announced that CK Hutchison’s rating would be unaffected by the UK vote to leave the EU.

“The UK is the key profit contributor to CK Hutchison, but the inherent stability of its UK businesses limits any impact on its operations stemming from the macroeconomic risks following the Brexit,” said Joe Morrison, a Moody’s vice president and senior credit officer.

We think the recent decline in the [CK] share price may be a knee jerk reaction to Brexit
Louis Tse, VC brokerage

The UK’s financial services industry is one that may be particularly affected by the decision to leave the European Union.

On Monday morning in Hong Kong, HSBC shares were down 1.37 per cent, Standard Chartered was down 1.04 per cent and Prudential fell 3.60 per cent.

“I see a long slog ahead for UK banks,” said Tse. “HSBC and Standard Chartered were suffering already in Hong Kong because of the low global interest rates and problems in Hong Kong’s property sector.”

Banks with European headquarters in the UK have been able to operate freely across Europe’s financial markets while having most of their staff and operations in the UK capital, under the so-called “EU passport”.

However, François Villeroy de Galhau, a member of the governing council of the European Central Bank and governor of the French central bank, told France Inter Radio: “If Britain is not part of the single market, the City [of London] cannot keep this European passport.”

Analyst Tse added: “The UK leaving the EU will negatively affect the EU economy, and this will have an impact on companies in Hong Kong with exposure there. Also, as many mainland Chinese companies have used the UK as a platform for accessing European markets – something that will be made more difficult by this result – I see the UK’s decision as affecting mainland Chinese companies listed in Hong Kong too.”