KUALA LUMPUR: Malaysian investments in the real estate sector in the United Kingdom (UK) will feel the heat if the country exits from the European Union (EU), said Allianz SE chief economist Professor Michael Heise.
The British pound will be hard hit and its depreciation, estimated to be as high as 20 per cent, will hurt Malaysian players there, he said.
The likes of Eco World International Bhd, the Employees Provident Fund, Permodalan Nasional Bhd as well pension fund KWAP and pilgrims’ fund Tabung Haji have substantial investments or projects in the UK.
Real estate investments, touted to be the third-largest in the UK, stand against a backdrop of investments which range from water firms to hotels as well as in iconic UK brands such as Laura Ashley and Lotus.
“Brexit (an abbreviation of ‘British exit’) is a short-term risk and many investors are adopting a wait-and-see stance,” said Heise, adding that the impact of Brexit will be felt across the globe.
A referendum on whether the UK should stay in the EU will be held on June 23.
Allianz Economic Research expects a 30 to 40 per cent risk of the UK stepping out of the 28-member community.
It would imply several years of heightened uncertainty for businesses there, Heise told a media briefing, here, yesterday.
“Any weakening of the UK economy is not positive for Malaysia but it is not a huge impact. It will be felt but temporary— maybe two to three years — before normalising again,” he added.
Malaysia’s trade with the UK totalled £2.76 billion (RM16.15 billion) last year.
Meanwhile, Heise said global uncertainties remain elevated with terrorism threat, financial market excess, China growth slowdown, oil price trends, Russia/Ukraine conflict, refugee crisis and the risk of EU break-up.
Emerging Asia, he said, will account for almost 60 per cent of this year’s global economic growth.
“Emerging Asia’s trade engine is, however, sputtering due to the growth deceleration in China, economic weakness in other emerging markets like Brazil and Russia and also the growth of the non-tradeable sector in China.”
As for Malaysia, the research house has projected the economy to grow by 4.2 per cent this year before slowing to four per cent next year.
It expects sound growth in private consumption and investment this year although the level of private consumption is likely to moderate to 4.5 per cent and five per cent from six and seven per cent over the last two years.
Heise, however, expects a declining inflation rate in Malaysia to raise the possibility of a rate cut.
On the United States Federal Reserve, he said a rate hike was likely this year and this would lead to a strengthening US dollar “but it will not last long as exchange rates will return to where they are right now”.
On the insurance market, he said the total insurance market growth (with the exception of health insurance) amounted to 4.6 per cent which was markedly below the 6.8 per cent average over the past decade.
Malaysia is one of the more developed Asian insurance markets with its average per capita spending of RM1,800 and insurance premiums amounting to 4.7 per cent of the gross domestic product.
“We expect the market to grow by an average seven per cent annually in the next 10 years,” said Heise.