The Royal Bank of Scotland (RBS) has sounded a warning to clients to be prepared for a crash in stock and credit markets on a global scale over the next three months. The negative impact of rampant global inflation on the major central banks is seen as the chief contributing factor to this gloomy outlook.
A report compiled by an RBS research team has warned that Wall Street’s S&P 500, which is widely considered to be the benchmark for U.S. equity performance, is likely to fall by around 300 points by September. The research team also predicts that a new wave of panic on the debt markets could cause the ITraxx index of high-grade corporate bonds to climb to 130/150, with a strong likelihood that the crossover index of lower grade corporate bonds will soar to 650/700
The Royal Bank of Scotland’s credit strategist, Bob Janjuah, has stressed that tough times are ahead and advises consumers not to incur debt if at all possible. In light of the fact that Janjuah’s warnings in 2007 with regard to the credit crisis proved to be accurate, many investors sit up and take notice of his financial predictions.
There are a number of investment professionals who, although agreeing that tough times are ahead, feel that it is not likely to be as bad as predicted by the Royal Bank of Scotland. One of these being Richard Buxton, a fund manager at global asset management company Schroders plc., who is of the opinion that Bob Janjuah’s comments are overly pessimistic. Pointing to the fact that, excluding stocks related to oil, mining and energy, the market is already down by about 30 percent over the past year Buxton is of the opinion that the current bear market has been distorted by the performance of those sectors and a lot of the bad news is already priced in. Additionally, many UK shares that are closely linked to the sluggish economy have also declined by between 50 and 80 percent over the last year. With this in mind, it is too late for investors to take steps to protect their portfolios, if they have not already done so. However, although it is too late to sell, there are indications that any falls will be temporary and investors may be better off riding the storm.
Chief investment officer at Neptune Investment Management, Robin Geffen, voiced similar sentiments to Buxton with regard to the current market. Although acknowledging that many market sectors have been bearish for some time now, he believes that there are still valuable opportunities to be found. Other investment experts agree that stagnant economic growth and rising inflation remain a real threat to all Western economies, however, market sectors such as medical, oil, gas and mining stocks still offer positive investment opportunities.
