Business Irish

Sunday 11 December 2016

Stock market surge is just dead-cat bounce

Published 14/08/2011 | 05:00

A top stock-market guru believes Irish and European stock markets will bounce by up to 15 per cent over the next two months -- before enduring even steeper falls than in the past few months.

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The warning, from Khuram Chaudhry, who has correctly predicted a number of stock-market crashes, indicates that the latest stock-market recovery -- in a week that started with €1.75trillion being wiped off the value of world stock markets -- is the beginning of a dead-cat bounce.

"Most major markets are likely to bounce by between 10 and 15 per cent over the next two months," said Mr Chaudhry, who heads up the European quantitative strategy team with Bank of America Merrill Lynch.

"The downside is not over, however -- stock markets could move down more aggressively after the bounce than they did before it."

Mr Chaudhry was part of Merrill Lynch's strategy team at the end of 1999, when the investment bank was one of the few predicting a downturn in share prices.

Back then, Merrill Lynch's forecast for the FTSE 100 for the end of 2000 was 6,300. The index eventually closed at 6,223.

Mr Chaudhry now believes that gloomy economic data will soon kill off the current market rally.

If Ireland and Europe moved into recession, their stock markets could fall by at least 20 per cent, according to Mr Chaudhry.

Mr Chaudhry also said he believed it could take another four years for the international debt problems to be resolved and for the turmoil on world stock markets to ease.

He believes that the roots of the latest financial crisis date back to the autumn 2007 subprime crisis in the United States.

"This is usually something that takes between five and eight years to resolve so we are half way through the process," added Mr Chaudhry.

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