I am being asked more and more by clients how they can invest with the unknown outcomes of Brexit and what they should do to protect against any market crash.

Firstly, it is helpful to understand that a decade on the hangover from the financial crash is still giving plenty of workers, governments, companies and financial institutions headaches. Understandably, after the biggest debt binge in history, the return to normality has been slow and painful, and, to the surprise of some, it is not yet over. Calm has returned to the banking sector, though risks remain.  The banks are better prepared for any number of unwelcome developments but what they cannot cope with is a sudden spike in defaults in the system as a small default from the weakest borrower increases the pressure on the next weakest borrower, which then defaults, etc up through the system at an accelerating pace until the whole system breaks. With digital markets, as seen in 2008, this can happen fast. The corporate debts from the last crisis have now moved on to government balance sheets. The greatest risk is therefore probably a sovereign default. If Turkey defaults, then the Spanish banking sector, which is already weak and weakening under defaults in Latin America, has a major problem. These problems are more likely where you have different currencies and countries.

If the world learned one thing from the financial crisis after 2008, it was that a crash in one market in a faraway land will swiftly make its presence felt across the world. Savers in Britain were hit by home loans in Florida going bad, the mismanagement of overextended Icelandic banks and the failure of institutions such as Fannie Mae (the US Federal National Mortgage Agency) they had never heard of.

 

Perhaps the next shock will come from a crash in the Indian equity market, or cyber-raids, such as the hostage software that attacked the NHS, or from a meltdown in the boom in car finance leasing schemes or shady financial institutions in emerging economies? We can be fairly sure that there will be one, because human history is littered with them, along with confident predictions that “this time it’s different”.

 

Turning to Brexit, the briefing by Mark Carney, governor of the Bank of England, to cabinet ministers was apparently greeted with silence. Whether that was politeness or shock is not recorded. Mr Carney spelled out the “worst case scenario” – property values crashing 30 per cent, unemployment rates more than 10 per cent (double current levels), net emigration from the UK, inflation, higher interest rates. Mr Carney did not indulge in wishful words about “Global Britain”, summon up the spirit of Dunkirk or extol the “exciting opportunities” that Brexit, as we were once promised, would swiftly bring. The cold hard fact is that Brexit could mean, as he told his political chiefs, economic damage as bad as that which was inflicted in the 2008 banking crisis. So, are we seemingly about to administer another huge shock to the economy in the form of Brexit – an entirely voluntary, self-inflicted one, in stark contrast to the banking crash or previous economic dislocations.

 

The ability to forecast the outcome of Brexit is a difficult one, where we must plan for both a deal being announced and indeed a no deal/ hard Brexit. The question you need to ask of your wealth manager is have they positioned for this and what if any downside protection have they put in place to protect your assets?

 

Richmond House Wealth Management provide Discretionary Fund Management solutions which actively manage our portfolios to address these challenges so that our investors don’t have to worry about them. In addition, the importance of having your own dedicated financial advisor together with a platform of researched funds cannot be underestimated.

As this is a specialist area of advice it is important to seek out this information from an appropriate financial adviser. Richmond House Group has this specialist knowledge and are always available to answer your questions.

This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned about the content hereof and any such action or inaction. Professional advice is necessary for every case.

 

John Merrifield.

Dip PFS, Cert (CII) MP.