2016 Economic Headliners:
2016 opened as "the worst start of the year in the history of financial markets," said Tidjane Thiam, the head of Credit Suisse at the World Economic Forum in Davos, in Switzerland.
The main topic of the Davos forum this year is the ‘fourth industrial revolution’.
However the topics hotly discussed focused on the decline in oil prices, issues of the Chinese economy and world security.
"Sell everything except high quality bonds," RBS said.
RBS tells investors to sell everything.
Royal Bank of Scotland (RBS) warned clients that 2016 could be a "cataclysmic year", predicting stock values could fall by a fifth and oil prices could plunge to $16 a barrel.
In its 8 January note to clients, RBS said that the current stress levels in the markets were comparable to those registered in the months immediately prior the 2008 crisis.
"Sell everything except high quality bonds," the bank's credit team said. "This is about return of capital, not return on capital. In a crowded hall, exit doors are small."
Citing the chaos that has gripped Chinese markets in the first trading days of 2016, the bank reduced its rating on exposure to equities from "overweight" to "neutral" on a "six-month tactical horizon", while it downgraded the prospects of emerging markets to "underweight".
With global debt ratios at previously unseen levels and global trade and loans on a downward curve, there was little for equity markets to be optimistic about over the next 12 months, the bank added.
More about global markets
"China has set off a major correction and it is going to snowball," said Andrew Roberts, RBS research chief for European economics and rates. "Equities and credit have become very dangerous, and we have hardly even begun to retrace the 'Goldlocks love-in' of the last two years."
A sharp slowdown in Asia, now the key region in terms of global oil demand, and OPEC's inability to take drastic actions to halt the current trend will conjure in dragging the oil prices through the floor, the bank said.
RBS identified China as the epicentre of the global crisis, highlighting the world's second-largest economy was in desperate need of a "dramatically lower" currency, in a bid to stem to ongoing capital flight.
"We are deeply sceptical of the consensus that the authorities can 'buy time' by their heavy intervention in cutting reserve ratio requirements (RRR), rate cuts and easing in fiscal policy," the note said.
Across the Pacific, the US Federal Reserve has been guilty of "playing with fire", according to the bank, which added the US central bank could be force to take the almost unprecedented step of cutting interest rates only a few months after raising them for the first time in almost a decade.
RBS, which estimates the world's largest economy slowed down to grow only 0.5% in the fourth quarter, said it was very unusual for the Federal Reserve to raise interest rates even though the country's GDP has been on a downward trend since 2014. "There has already been severe monetary tightening in the US from the rising dollar," the bank said.
RBS said the forecast might still turn to be inaccurate but warned investors of the predictions it made in November 2015, which it first issued over the outlook of the global markets during that month.
"There is a difference between forecasting something and it actually crystallising," the bank said. "We think investors should be afraid that the ominous outlook for the world in our Year Ahead has been borne out [ex-ECB cuts] over the past six weeks. This hardens our 'anti-goldilocks' and deflationist views."
Source: International Business Times