Why Brexit could be good for GCC
Lower interest rates could benefit dollar-pegged countries
A prolonged period of lower interest rates on Brexit is beneficial to dollar-pegged Gulf nations, according to a study by Global Investment House.
"We expect the Brexit and consequent events to push the US Fed to take a much more dovish view which would result in a delay in the rate rise," the study says.
It adds: "Given the currency peg of the GCC countries, such an event would be more positive for the GCC countries as lower oil prices have resulted in slower growth and a lower interest rate would be conducive in this scenario."
Local banks, the study says, will take slower rise in interest rates as a negative given that this was the main catalyst seen behind their earnings growth trajectory.
Gulf investors' property investments in the UK may pick up after a brief pause in the wake of Brexit, according to the Global research. Property investments in the UK have seen marked interest from investors from the GCC over the past few years.
Investors from the UAE accounted for more than 20 per cent of buy-to-let property sales in the UK in 2015.
On the other hand, a stronger dollar will adversely affect the property market in Dubai. The UK remains among the top five buyers in the Dubai property market and similar to the scenario played out during the devaluation of the Russian rouble, a fall in the value of the UK pound will adversely affect the demand of Dubai property emanating from UK nationals.
Additionally, the weaker currency is expected to adversely impact tourism as well, given that British and European nationals are among the top tourists in Dubai.
Exports to UK
GCC exports to the UK and EU may reduce if economic slowdown materialises. Given the GCC's exports to the UK and the EU remain concentrated to the oil and energy related products, any slowdown in the respective economies on account of the Brexit, may lead to further pressure on the price of oil. While oil has already reacted in anticipation to this, the realisation of an actual slowdown will be negative.
Moody's put the UK on negative outlook while Standard and Poor's also warned that Britain's top AAA credit rating was now at risk.
The rating agency fears that Britain's growth performance, external funding, and the public balance sheet were all going to suffer. And it cautioned that it could easily cut the rating by at least one notch, due to the economic problems Brexit will cause.
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