How do you take your disaster: Natural or Financial?

Yael Warman

On June 23rd, the United Kingdom took a referendum on whether to stay or leave the European Union causing record breaking volatility across global financial markets. What does a geopolitical event have in common with a typhoon and how do both affect the FX industry?

With financial cyclones whipping the UK financial markets into a frenzy post Brexit and tropical Cyclone Nida whipping Hong Kong into an area of natural disaster, times do appear to be uncomfortably unpredictable.

Yet, giving ourselves the hypothetical ultimatum of having to choose between them, let’s look at the circumstances that surrounded both disasters; natural and financial.

On June 23rd, the United Kingdom took a referendum on whether to stay or leave the European Union. The resultant historic decision to leave the EU was not without its consequences, causing record breaking volatility across global financial markets.

Whilst the decision to leave the EU was strongly motivated by financial considerations, like preventing downward pressure on the pound due to poor EU financial policy and weak member states, it is also clear that the decision was strongly impacted by a number of political factors.

With several weeks having now passed since Britain’s divorce from the European Union and the Bank of England having confirmed that the risks of having left have now begun to “crystallise” in the economy, we are able to take stock more accurately of the extent of the devastation.

  • The British pound plummeted to a new 31 year low against the US dollar, at one point falling as low as $1.30.
  • A number of property fund managers have refused to allow their investors to withdraw their money after there was a run on redemption requests.
  • In response to the crisis, the Bank of England has eased regulations on commercial banks, allowing them to release up to £150 billion worth of loans for households and businesses.
  • A closely monitored study on the service sector found evidence of a sharp slowdown in the wider economy.

Far away from this financial whirlpool is Hong Kong, which at this time is quite likely thanking its lucky stars that it became independent from British rule in 1997, a move which likely lessened the impact of the Brexit turmoil on its economy.

But it has not been entirely free of disaster either. Typhoon Nida hit Hong Kong on August 2nd, whipping through the city at speeds up to 145 km/h (or 90 mph). By no means a small gust of wind, the Hong Kong Observatory issued the third most severe warning signal for the first time this year.

Hong Kong is all too familiar with extreme weather conditions and it braced itself very well, with no serious damage reported. In fact the total impact of the devastation tallied in at 180 flights being cancelled, buses, tram and ferry routes being suspended and the city being put under lockdown until a reduced warning was issued two days later.

Between the two of them, the “preferential” disaster is most certainly Hong Kong’s Typhoon. Despite being rugged up at home for a couple of days, Hong Kong’s economy is still enjoying a robust vibrancy, whilst everyone oohed and ahhed over the fantastic drama unfolding outside their windows.

At our own Leverate Hong Kong branch, it was business as usual, as our employees weathered the typhoon entirely safely, albeit a little distracted by the sights.

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