The Royal Bank of Scotland has recommended its clients prepare for a “cataclysmic year,” as major stock markets could drop by a fifth and Brent oil could hit $16 a barrel.
“Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” said the bank’s credit team in a note sent to clients, quoted by the Telegraph.
According to RBS analysts, the markets are showing the same stress alerts as seem before the 2008 crisis.
Andrew Roberts, the bank’s credit chief, says that “China has set off a major correction and it is going to snowball.” China “has very high debt levels (as a percentage of GDP) given they are still emerging” and crucially they have accumulated this debt incredibly fast, he said.
He predicts European and Wall Street markets to drop from 10 to 20 percent this year. London’s FTSE100 was predicted to plummet even lower.
“London is vulnerable to a negative shock. All these people who are ‘long’ oil and mining companies thinking that the dividends are safe are going to discover that they’re not at all safe,” said Roberts.
“We are moving in a short-term $26 target and once reached down to $16. Our forecasts are for this to occur through 2016, but the risk is it occurs in Q1 as global oil demand drops off according to IEA forecasts and the world runs out of ships to store it in,” he said.
This follows a bearish outlook for this year from Roberts’ team, issued late last year.
At the time Roberts said there are “a number of bad headwinds affecting the world right now, which will worsen in 2016.”