Sunday 25 March 2018

Investors told 'sell everything' in dire RBS financial warning

Lehman Brothers’ former headquarters in New York. Photo: Gino Domenico/Bloomberg
Lehman Brothers’ former headquarters in New York. Photo: Gino Domenico/Bloomberg

Colm Kelpie and Donal O'Donovan

Investors have been advised to "sell everything except high quality bonds" by one of the world's biggest banks in a dire warning about financial risks in the year ahead.

In a bleak note to clients yesterday, researchers at investment bank Royal Bank of Scotland said their "cataclysmic" view of the world in 2016 resembles 2008, when the collapse of US bank Lehman Brothers precipitated the global financial crash.

Global economic growth, trade and credit are all slowing and investors should sell almost everything, RBS said.

In a note circulated to clients, the bank's economists forecast that international markets could slump by up to 20pc this year and oil could fall as low as $16 per barrel.

And it said the world has far too much debt to be able to grow.

The views go beyond those of most mainstream commentators, but come after markets endured the worst start to the year since records began.

Donal O'Mahoney, chief strategist at Davy in Dublin, said yesterday that volatility on financial markets will be a major feature of the year ahead - but said it was because cheap money from central banks that propped up financial assets like bonds and shares after the crash is finally being switched to the so-called real economy. What's potentially good for the global economy will hit financial markets, he said.

The view from RBS was dramatically more negative.

"Sell everything except high-quality bonds," the UK bank warned.

"This is about return of capital, not return on capital.

"What counts is that the world is slowing, trade is slowing, credit is slowing, we are in a currency war, global disinflation is turning to global deflation as China finally realises what it needs to do (devalue soon, and sharp) and the US then, against all this countervailing pressure, stokes the fire by hiking rates."

China is now seeing capital flight, as cash is pulled out of the country, RBS said.

The negative assessment came after Morgan Stanley said oil prices could slide to $20.

RBS issued a bleak warning on the global economy in November and said yesterday that its outlook has been borne out over the last six weeks.

"That is the problem. It is not lost on me when something goes from a forecast, to an actual outcome. The downside is crystallising. Watch out. Sell (mostly) everything".

Irish Independent

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