RBS has advised its clients to “sell everything” except for high quality bonds and warned of a "major correction" triggered by China’s debt-driven expansion.
As reported by The Telegraph (UK) this week, RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crises warning that major stock markets could fall by a fifth and oil may plummet to $16 a barrel.
“Sell everything except high-quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” it said in a client note.
According to The Telegraph, Andrew Roberts, the bank’s credit chief, said "China has set off a major correction and it is going to snowball".
“Equities and credit have become very dangerous, and we have hardly even begun to retrace the 'Goldlocks love-in' of the last two years,” he said.
RBS said the epicentre of global stress is China, where debt-driven expansion has reached saturation. The country now faces a surge in capital flight and needs a “dramatically lower” currency. In their view, this next leg of the rolling global drama is likely to play out fast and furiously.
“We are deeply sceptical of the consensus that the authorities can ‘buy time’ by their heavy intervention in cutting reserve ratio requirements (RRR), rate cuts and easing in fiscal policy,” it said.
[Related: China slowdown a cause for concern]