Comment: Post-Brexit stock market turmoil will hurt us all

A no deal Brexit will affect our public service folks' savings, investments and pensions, says Duffy. Picture: contributed.
A no deal Brexit will affect our public service folks' savings, investments and pensions, says Duffy. Picture: contributed.
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Royal Bank of Scotland last week posted some terrific numbers. For some, they will never forget or forgive the bank for causing them pain after the crash of 2008. But, after a long and arduous fight back paying off billions of pounds in fines, RBS and its subsidiaries are back in business. And this is a good thing.

Why? Well, share prices and dividends are good for all of us, whether it be the private or public sector. If you have investments then these need to grow and attract income from dividends from large corporates like RBS. If you have a pension, public or private, the pension investment teams needs growth also so that the underlying funds reap the benefits of cash coming in, instead of going out. But, as RBS chief Ross McEwan gives his view on Brexit, it may be time to actually think about what is would happen to stocks in the event of a no deal and how this affects us.

I do not have an economics degree or years of expertise on the stock markets. Mind you, many did and we still went down the tubes in 2008/9. Big banks and institutions like Lehmans, with all those clever people working there, still fell foul of events and the markets. But, even without my degree or boardroom experience, I can still venture sound predictions. So here goes…

If we have a no deal scenario, then I predict that the London Stock Exchange will drop about 5 to 10 per cent. This is a massive drop. It will hurt like hell. Around the festive period in 2018, the global markets dropped violently, falling 1 to 2 per cent. These still hurt. A 10 per cent decline would feel almost catastrophic.

Where’s the science in all of this, I hear you ask? What research have you done before terrifying us all? Well, that is exactly my point here. Despite all the investment expertise, mathematical algorithms and scenario planning that is playing out in corporate bunkers, no-one has any real idea about what will actually transpire. So, I am just as entitled to have a go.

Regulators have instructed banks to stockpile cash in reserve funds, just in case. Many companies and no doubt the government have set up “war rooms” where I guess they are scenario planning, playing battleships and no doubt trying to justify their own existence with some kind of informed forecasting. “Stress testing” is the buzz term sweeping across businesses to make sure they have “resilience” built in. And they quite rightly should, as if my predictions are right, then the UK will suffer it’s biggest stock market loss seen in such a short time, and it will be sustained. And don’t hope for the Americans to help us out. This is not a war scenario that they will need to get involved in. No, US investors will run for the hills, bailing out of UK stocks. Of course, they will buy in again, at rock bottom prices, when they feel we have suffered enough and they get their man or woman in Number 10.

This is my no-deal scenario that would stand up in any war room as, just like them, I am intuitively making it up as I go along. And why do I feel so strongly that I am right? Because we have never been in such potential turmoil before and never been disliked as much. This is the opportunity for others, including Europe, to put the boot in. And they will. But this is not just about business; it has significant and far reaching ramifications for us all.

No deal – in my humble, yet just as valid as Flash Harry’s, opinion – will affect our public service folks via their savings, investments and pensions. These big funds need strong growth and the like of RBS dividends to pay out the pensions millions of us receive every month. If any of these fail, then “Houston, we have a problem” as the government is in enough debt to be throwing lifelines willy-nilly. It’s time to get real and ensure our MPs don’t regret playing too much politics with this one.

Those who manage our money, and they are hugely important for us all, can handle a four or five on the financial Richter scale of Brexit. What they do not need is a seven or above.

- Jim Duffy MBE, Create Special