Sept. 16 (Bloomberg) -- Global credit losses will rise by a further $1 trillion as financial turmoil spreads following Lehman Brothers Holdings Inc.'s bankruptcy, said CLSA Ltd.'s Christopher Wood, who in 2003 predicted the U.S. housing crisis.

``There is no way out of the inevitable deleveraging that is the consequence of the ludicrous leverage that Wall Street regarded as `normal' in recent years,'' Wood wrote in a report dated today. ``The market is saying that the credit crunch will now inflict an inevitable toll on real economic growth.''

Wood's estimate would bring total writedowns and losses at the world's largest financial institutions to $1.5 trillion, exceeding forecasts given by the International Monetary Fund and Bill Gross at Pacific Investment Management Co.

The top-ranked Asian strategist in Institutional Investor Magazine's yearly poll recommends investors avoid shares of cyclical companies whose stock prices are likely to drop as global growth concerns mount. Meanwhile, interest-rate sensitive stocks such as property developers represent attractive bets as central banks move to lower borrowing costs to boost economies.

In a February 2003 research note Wood, the former Tokyo bureau chief of ``The Economist'' magazine, warned that the explosion of mortgage securitization in the U.S. would likely create huge gains in property prices and similar declines once the credit spigot was turned off. The strategist has been recommending short selling Western financial institutions since the beginning of the subprime crisis last year.

Liquidation

Asian stocks slumped the most in eight months today, with the benchmark MSCI Asia Pacific Index losing 4.2 percent, following declines in the U.S. and Europe. American International Group Inc. plunged 61 percent in New York, part of the biggest tumble in U.S. stocks since the September 2001 terrorist attacks, while Lehman yesterday filed the largest bankruptcy in history.

Sean Darby, chief Asian equity strategist at Nomura Holdings Inc. in Hong Kong, said the sell-off in global equities is the result of investors and institutions raising cash by unloading their most liquid assets.

``Equities are passing through a stage of capitulation when fundamentals or valuations matter little,'' he wrote in a note to clients. ``The indiscriminate selling of equities has made us much more constructive towards the asset class compared to any time over the last year.''

`Canons Are Firing'

CLSA's Wood also reiterated that the drop by the MSCI AC Asia ex Japan Index below 400 signals a buying opportunity for the region. The gauge fell as low as 375.72 today and has lost 45 percent from its October record high. The index is valued at 11 times estimated earnings compared to the Standard & Poor's 500 Index's 14 times.

``Any brave souls who step up out there and buy today may well be seen as heroes in two or three year's time,'' said Prasad Patkar, who helps manage the equivalent of about $1.8 billion at Platypus Asset Management in Sydney. ``There's an old saying which says `sell when the victory bugles are sounding, and buy when the canons are firing.' Well, the canons are firing.''

Credit Suisse Group's chief equity strategist in Tokyo Shinichi Ichikawa sounded a more alarmist view today, saying that the failure of Lehman could start a chain reaction.

``The lurching of the U.S. financial system, brought on by the subprime mortgage implosion, might be uncontrollable without some serious government involvement, including capital injections,'' Ichikawa wrote in a report today. ``Amidst such circumstances, we favor keeping portfolios centered on internal demand defensive stocks such as telecoms, pharmaceuticals and land transport.''

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

Last Updated: September 16, 2008 02:21 EDT