‘Sell everything’: note that’s set off share market panic

IN A chilling note, one of the world’s top banks has outlined in no uncertain terms what kind of crisis the global economy is facing.

AS IF things couldn’t get worse on global share markets, one of the world’s top banks has issued a chilling warning to investors.

Not only has the Royal Bank of Scotland warned of a “cataclysmic year” ahead, but its credit team has advised clients that a global deflationary crisis is about to hit, The Telegraph reports.

“Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” RBS credit chief Andrew Roberts reportedly said in a client note.

“China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous.”

Mr Roberts predicted that Wall Street and European stocks would fall by 10 to 20 per cent, with even an deeper slide for the FTSE 100 given its high weighting of energy and commodities companies.

“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,” he said.

Chinese stocks seesawed wildly in initial trading on Tuesday, fuelling market volatility throughout Asia, with Australia’s S&P/ASX 200 reversing early gains to dip 0.2 per cent to 4,920.60.

“In the Chinese equity markets so much damage was done to investor confidence last week” by new “circuit breaker” trading halt mechanisms that backfired, said IG analyst Angus Nicholson.

“I think that has really done a significant amount of damage to Chinese investor confidence and confidence in the government’s ability to manage and regulate Chinese capital markets,” he said. “Concerns about how the Chinese economy is faring has only added to these other concerns.”

Stocks in Shanghai appeared to be searching for direction a day after losing five per cent, with downward momentum winning out. A firmer yuan failed to help sentiment.

The Shanghai Composite Index fluctuated between gains and losses and was 0.3 per cent lower at 3,008.65.

Hong Kong’s Hang Seng climbed 0.3 per cent to 19,944.14. South Korea’s Kospi edged lower to 1,891.98.

Investors have been closely watching China’s tightly controlled currency following last week’s market turmoil, which was triggered by authorities setting the daily rate at its lowest in five years.

But on Tuesday the yuan weakened by a mere two basis points to 6.5628 against the US dollar.

Japan’s benchmark Nikkei 225 reopened after a holiday, falling 2.1 per cent to 17,322.56 as the index caught up with losses the previous day on other Asian markets.