KUALA LUMPUR: Although United Kingdom's surprise exit from the European Union has been recognised as muted in terms of its impact on Malaysia, AffinHwang Capital Research warned of the contagion effect.
"We're worried about the contagion effect from Brexit.
"If the repercussions spill over into the EU resulting in a hit to EU's growth, we could see as much as 10.1 per cent of Malaysia's total exports being affected (including the UK portion)," says Chue Kwok-Yan in a report today.
The impact works out to RM78.8 billion.
Also, a bigger concern is a precedent which has been set now for relinquishing EU membership.
If the core EU members are unable to hold the block together it could spawn referendums in other countries that could unravel the EU and the single currency, and extrication would be far more difficult than for the UK given their deeper integration, he said.
UK was the destination for 1.2 per cent of total Malaysian exports last year, which works out to RM9.3 billion.
In terms of market earnings, he said the exposure for Malaysia to UK and EU is manageable given the geographical distance.
The worst-case scenario is a 0.8 per cent decline in 2016 fully diluted EPS if all market earnings from the UK disappear.
That impact increases to 0.9 per cent if this is extended to the EU.
"This takes into account both YTL Power and YTL Corp, which have huge earnings from the UK but the risk of zero contribution is minimal given the utility nature of the business."
Stripping these out, the potential decline in earnings is reduced from 0.9 per cent to 0.7 per cent.
Overall, the companies most impacted, measured by percentage of earnings contribution from the UK (excluding YTL companies), are Amcorp Properties, SP Setia, and Genting Malaysia.