The powerful revival in global stock markets in recent weeks is almost at an end, according to a top economist. David Karsbøl of Saxo Bank - one of the world's foremost currency trading firms - says the market rally has nearly run its course and expects a further leg of downside to begin soon.
"Most of the benefits from the US plan to buy up troubled assets are now priced into the market," says Mr Karsbøl, chief economist of the Danish institution. "Financial stocks have rallied particularly well on the back of this deal, but details on how the plan is actually going to work could have a negative effect on them."
Pop!
Mr Karsbøl believes there is still plenty of bad news to come out of the US. "America is one big bubble - 30 years of mismanagement have gone into creating this situation. And their solutions to the crisis are distinctly un-American. There's no emphasis on thrift and hard work, simply a belief that government action can save the day."
Despite recent positive data on US housing, Mr Karsbøl believes the real-estate slump has not yet reached a trough. "I am still looking for a 20 per cent fall in American residential property prices," he says. "This is going to create more solvency issues for already troubled lenders there."
Europe is not much better placed, according to Mr Karsbøl. "Eastern Europe is an Iceland waiting to happen," he says. "Western European nations like Austria have lent heavily to the East and they are simply relying on Germany to bail them out when the full impact of the crisis finally hits them."
Bonds aren't a safe haven
While the outlook for stocks is unpromising, Mr Karsbøl is also wary of bonds. "The major nations' fiscal strategy could well destroy the bond market," he warns. "If governments' money printing leads to them owning all long-term government bonds, there will be inflation. A big spike in lending rates is maybe a one-in-four risk in the coming years. This could cripple a lot of otherwise viable businesses and mortgage holders."
According to Saxo's chief economist, the nations best-positioned to emerge first from the crisis are in Southeast Asia. "Southeast Asians are working hardest, and investing most and they have a long-term demographic advantage," he says. "I am not positive on China however, as their success has been built on lending to Americans to buy their goods and they have no plan 'B'."
What do we think? See January's feature for our views on asset allocation.
What do you think? Add your comments below...
