Currently it feels completely impossible to escape the Brexit debate, the leavers seem hell bent on telling us, stay in, and we are doomed to be part of a low growth conglomerate. The remain campaign tells us a vote to leave is a vote to destroy the economy. Anthony Hilton in the Evening Standard on Thursday adds his voice to the remain camp, in an article headed, A vote to leave threatens the stock market. In the article Mr Hilton suggests that as well as sterling and equities, other asset classes, for example corporate bonds will be hit just as hard. This is an asset class that many individuals have moved into to looking for income as an alternative to equity risk. He talks about falls of 25% being speculated.
One reason for this highlighted by Mr Hilton is the changing role of Investment Banks within capital markets. In years gone by during periods of uncertainty traders and bankers would deploy capital to absorb the volatility. They were professionals who were prepared to take the risk during the volatile times, holding the inventory until the fear passed. Not any more, investment bankers have had their wings clipped post 2008, much more capital is required to be held within banks to undertake this role. On top of that, Chief Executives are less keen to back traders in this much more highly regulated world.
Many people will argue good job too, the bankers almost ruined us in 2008, what the world needs is less bankers not more. The reality is the world needs a flourishing investment banking community. The ability to raise and invest capital in the coffee shops of London in the early 1700’s helped fund the growth of the empire and the industrial revolution in the coming centuries. In today’s world investment banks are just as important as the internet.
The plus side to the reduced role bankers have in managing the volatility may be good news for the brave. We are often arguing volatility brings opportunity, and during these times the baby is often thrown out with the bath water. The fact that the bankers are no longer there to provide the role of backstop, may create opportunities for the diligent.
One last story, in Thursday’s Standard apparently couples are holding back starting a family on Brexit concerns. Over time there have been many excuses, not tonight dear I feel a Brexit coming on is a new one on us.