PA OPINION: ‘Lehman moment’ analysis risks missing the Brexit point

A number of commentators have sought to reassure investors that the events of last week were not ‘a Lehman moment’.

PA OPINION: ‘Lehman moment’ analysis risks missing the Brexit point


This is an understandable impulse because the word conjures up instant images of chaos in the minds of most people in the financial services industry and, reassuring the industry that Brexit is unlikely to trigger as significant a crisis seems prudent. But, trying to put the two events onto the same continuum risks missing a fundamental point about Brexit – it is not a financial event.

While it is true that Brexit has well and truly set the cat among the UK political set’s pigeons, much of the commentary within financial circles has focused on the impact on asset prices, which is where the Lehman comparison comes in.

But, while it is true that, in the short term, sterling has slumped and, in the medium term, trade will be affected to a greater or a lesser degree as new rules of engagement are worked out, a bigger point is worth making: a vote by the UK to leave the European Union was powerful blow against globalisation, and investors should be prepared for its impact.

As Brad Tank, fixed income CIO at Neuberger Berman told Portfolio Adviser just ahead of the vote: “I am a big believer in the notion that progress is not linear; progress isn’t a given. You are not always moving forward through time. In the long view there are periods where you are moving backwards, dark periods if you will and people need to relearn the mistakes of the past and things people take for granted become rejected, I think we are in one of those periods now.”

Peter Toogood, investment director at City Financial, went even further, saying the vote is a further indication that the current economic model globally is utterly broken.

“Step back and think – the cost of money is virtually zero, yet we have a mediocre recovery. Alas, mediocre was always likely. A debt overhang from the last bust was never going to be solved by another debt bubble.”

Indeed, he added: “The challenges we face in the UK are more immediate, but from Spain and France through to the US, the challenge is the same. Capital has had its day and it’s time for labour to share the spoils. The common man/woman is fed up and is making his/her voice heard. As a result of this, Toogood says, from an investment strategy point of view, in the short term caution is required because, he says “there are no rules of engagement at times of crisis”.