Pain from Brexit on Britain, EU may be exaggerated: DBS chief

Singapore - Taking a contrarian view, DBS chief Piyush Gupta on Friday argued that the stunning "Brexit" result may not hurt Britain as dramatically as is perceived, and that a European Union (EU) that is less centrally managed might create a more sustainable region.

"I think the true structural impact from Brexit on Britain is exaggerated," he told reporters on the sidelines of DBS's first institutional investors symposium.

He said that in the short term, the UK could see a surprise bounce because of the weaker sterling, and noted that the trade flows between the EU and Britain should continue despite the break-up - and one that has also torn UK apart with the tight 52:48 vote.

"Comparative advantage, which determines macroeconomics, will not change," said Mr Gupta, pointing out that Switzerland has survived without being part of the EU.

As it is, he observed, the entire Europe project has been called into sharper question, and comes as investors already see EU as an economic bloc that lacks consistency across its member states.

The Spanish bonds would trade differently from the German bonds, noted Mr Gupta, adding that he'd bet on more weakness in the euro, than the sterling, in the days ahead.

With London voting to stay within the EU, and the heartlands choosing to get out, Brexit has also signalled something else from a social point of view - that of anger over income inequality, and the rise of the anti-establishment.

"It is about the common man voting against the establishment," said Mr Gupta, pointing to discontent that speaks to the "keeping up with the Joneses" mentality.

"I might be doing better than before, but if my neighbour is doing twenty times better, it makes me feel worse."

Chief economist at GIC Leslie Teo pointed to the surge in popularism, even as technology is purported to be a social leveller.

"We know that all this popularism is troubling, because it could lead to a world that is more deglobalised . . . (in) a world where technology, in theory, should be helping every one. But a significant number of the population rebels, and does not allow that to happen," said Dr Teo.

"I'm not necessarily predicting a dystopian world. I'm just saying we don't know. We could have a wonderful world where robots, and artificial intelligence and the sharing economy, all lead us to have more wonderful, productive lives, and higher wages. Or we could be fighting each other," he added.

DBS's Mr Gupta said that there is no "Lehman moment" from Brexit, though he foresees a more volatile second half of the year.

"I don't see a gridlock - I don't see people figuring out massive counterparty risk," he noted.

He added that in the weeks ahead he would expect a coordinated response from central banks, as they step in to ensure there is enough liquidity in the markets.

The Monetary Authority of Singapore has said it would provide more liquidity to the banking system if needed.

This article was first published on June 27, 2016.
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