SINGAPORE - The Royal Bank of Scotland issued a dire warning to investors on Tuesday (Jan 12), telling them to head for the exit because of the "cataclysmic year" ahead for markets.
In a note to clients that went around the world, RBS head of European Economics Andrew Roberts said: "Sell everything except high quality bonds."
He said the world is in a global recession and the warning signs - plunging oil prices, volatility in China, shrinking world trade, rising debt, weak corporate loans and deflation - had all been seen in just the first week of trading.
He wrote: "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, then stokes the fire by hiking rates."
"We think investors should be afraid," wrote Mr Roberts. "This terrible cocktail means investors should now be thinking about getting a 'return of capital, not return on capital'."
Mr Roberts compared the market mood with that of 2008 before the collapse of Lehman Brothers and the start of the global financial crisis. At least then, he said, emerging markets were there to save the world from complete collapse. But China cannot this time around, let alone any other big emerging market.
China is grappling with "a severely over-valued currency" - as much as 20 per cent, RBS estimates - "continual enormous capital outflow, which has to be stemmed by reserves shrinkage". RBS estimates that as much as US$170 billion (S$244 billion) of private capital left China in December.
A chart showing Chinese outflows in 2015 is "surely now the most important chart in the world", Mr Roberts wrote.