Recession still looms and the economic slowdown will trigger a 60 percent drop in equity prices, according to Societe Generale.
It is “premature” to say that the risk of a double-dip recession has passed given the prospect of fiscal tightening “coming down the tracks,” Albert Edwards, Societe Generale SA strategist, said in a report dated yesterday.
If the U.S. government’s quantitative easing plan fails and fiscal tightening sends Western economies back into recession, the “unfolding liquidity driven EM and commodity bubble” will burst just as it did in the second half of 2008, he said.
“Despite all this liquidity pouring into EM equities, they are just another high beta trade, outperforming on the way up and underperforming on the way down,” he said.
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