Tuesday, 12 January 2016

Sell Everything ahead of Stock Market Crash, Say RBS Economists

THE GUARDIAN: Royal Bank of Scotland warns of ‘cataclysmic’ year with slumps in shares and oil and advises clients to shift to bonds

Investors face a “cataclysmic year” where stock markets could fall by up to 20% and oil could slump to $16 a barrel, economists at the Royal Bank of Scotland have warned.

In a note to its clients the bank said: “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.” It said the current situation was reminiscent of 2008, when the collapse of the Lehman Brothers investment bank led to the global financial crisis. This time China could be the crisis point.

Stock markets have already come under severe pressure in 2016, with the FTSE 100 down more than 5% in its worst start since 2000. In the US, the Dow Jones industrial average has made its poorest ever start to a year.

Oil prices have also fallen sharply on fears of lower demand and a supply glut, especially with Iran due to start exporting once more when sanctions are lifted. Tensions between Iran and Saudia Arabia make it less likely that Opec can agree to cut production to halt the slide in prices. Brent crude is down another 1% at $31.18, its lowest level since April 2004.

Investors have been spooked by fears of a severe slowdown in the Chinese economy and a fall in the value of the yuan, not helped by a crash in the country’s stock market despite attempts by the country’s authorities to curtail selling.

Andrew Roberts, RBS’s credit chief, said: “China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous, and we have hardly even begun to retrace the ‘Goldilocks love-in’ of the last two years.” » | Nick Fletcher | Tuesday, January 12, 2016