While much of the recent bad news can be partly linked to the Brexit effect, a more sanguine examination suggests the downward trend has been brewing for some time. The property industry may have found itself in the eye of the storm on referendum day, but searching questions have long been asked of the London property market, while the battered retail industry's challenges are of a long-term structural nature as much as short-term economic ones.
Banks, as we discuss on page xx, are more generally troubling, and particularly in Europe where the threat of contagion from Italy's banking crisis has sent shares plummeting this year. Italy’s Monti dei Paschi di Siena, the world’s oldest and now – according to the latest round of stress tests - its weakest bank, has seen its share price collapse nearly 90 per cent in a year after a third bail-out. But it is not alone; the once mighty Deutsche Bank has lost two-thirds of its value in 12 months, and the Adam Smith institute, a leading think-tank, said this week that Britain’s banks are sleepwalking into a crisis that could be worse than the collapse of Lehman in 2008.
That is a truly terrifying prospect, far scarier than the short-term upheaval the referendum may have caused - because the recent Brexit-induced sterling weakness is nothing in comparison to the falls seen during the Credit Crunch, when at one stage a pound barely bought a euro. Looking through this week's many results, and currency volatility is something we may have to get used to again; this week’s cover feature on page 22 should help you understand its investing implications, which are far more nuanced than the simplistic post-Brexit narrative suggests.
Given this uncertainty it’s hardly surprising that, according to the Investment Association's latest fund flow data, some investors are capitulating (see page 36). Yet while it’s important to always approach the markets with a healthy degree of cynicism, this looks more like a panic-stricken case of throwing the baby out with the bathwater – because the alternative is holding cash in a world where interest rates are only heading one way. Indeed, it’s important not to mistake cynicism for pessimism because, to paraphrase the title of Dimson, Marsh and Staunton’s seminal study on investment returns, it is the equity investing optimists who can patiently look past short-term gyrations who ultimately triumph.
