The Royal Bank of Scotland is telling clients to dump their stocks, forecasting the economy is about to take a turn for the worse – leading to conditions similar to those seen in 2008.
“Sell everything except high quality bonds,” the bank said in a note to clients. “In a crowded hall, exit doors are small. Risks are high.”
The Guardian reports, this time around, China’s economic slowdown could be the catalyst for a global financial crisis.
With the Dow Jones recently slumping to the worst-ever five-day start and oil prices tanking to seven-year lows in result of China’s economy, the economist are predicting the U.S. markets could fall somewhere between 10 and 20 percent.
“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,” the bank wrote. “This hardens our ‘anti-goldilocks’ and deflationist views.”
The bank said central banks providing low interest rates has supported the markets, and without that quantitive easing, there could be economic consequences.
“We suspect 2016 will be characterized by more focus on how the exiting occurs of positions in the 3 main asset classes that benefitted from QE (other than high quality govt FI, which is cheap): 1) EM, 2) credit, 3) equities,” the note reads.
Other banks have also advised their clients to get out of the turbulent markets if the opportunity presents itself.
“Our view is that the risk-reward for equities has worsened materially. In contrast to the past seven years, when we advocated using the dips as buying opportunities, we believe the regime has transitioned to one of selling any rally,” J.P Morgan equity strategist Mislav Matejka said in a report.