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Russell Taylor: Fresh thinking needed by investors as Brexit looms

Russell Taylor: Fresh thinking needed by investors as Brexit looms

Shareholders had a thoroughly torrid 2018, but will this coming year bring worse? 

Last year markets were unpleasantly surprised by the switch from quantitative easing to QT, that is to say quantitative tightening, as central banks around the world stopped supporting stock markets with easy money policies. And as Warren Buffett famously said, it is only as the tide goes out that we see who has been swimming naked.

On the continent, the real economy may receive a shock in May when elections to the European Parliament are due. Latest Eurostat figures show despite unprecedented levels of employment, in-work poverty has continued to grow since the financial crisis. So the populist threat continues, as the gilets jaunes – the yellow vests – protests in France show.

If full-time workers throughout the EU cannot earn enough to feel safe in their homes, or avoid food banks, then the outlook for British investors is worse still. 

Within the next two months, the UK’s political class will need to make decisions that will affect the country for many decades to come. Yet the discussions about Brexit show the country is not only divided, but also badly informed on how the world has changed over the years since the collapse of the Soviet Union.

History restarts

Back then, books proclaimed the ‘end of history’ as a triumphant US and liberal democracy was assumed to portend a unipolar world. It was only a matter of time, they predicted, before every other country accepted that reality. Not only has President Donald Trump upended that expectation, but the world now has three military superpowers – the US, China and Russia – and also three economic giants – the US, China and the EU – as well as many regional power brokers such as India, Japan, Iran and South Korea.

Each of these giants has their vassal states – to use a description much liked by Brexiteers – but that has always been the normal state of affairs. Whether for trading or alliance, rules are necessary, and these are nearly always imposed by the stronger or richer partner. Within the EU, which is a single market rather than a trading alliance, such rules are required to avoid ‘free loaders’, and all members have a right to discuss and agree to the rules. 

Regionalisation has changed the world, and it is regions that trade with each other, rather than discrete nation states. As a medium sized-power, the UK might yet choose to throw itself into a world of antagonistic trading giants, while giving up a membership of a union that is both geographically logical and one with which it has been remarkably successful in setting policy.

Even this government admits, while still pushing for parliamentary support for its own proposed exit, that the departure will make the country poorer. What it must also know is that it is abandoning a policy that has kept the country free and successful for more than 1,000 years – that is, to prevent any one country or polity from either dominating Europe or controlling the Low Countries.