Royal Bank of Scotland Prediction Accurate.

Well today is the third day of Chinese New Year. The beginning of first trading days for the Malaysia share market. Nothing special for today's trading. During this first two days of holidays I managed to take my time to reorganised my files in my computer. All the sudden I found one special article that I have received before the financial crisis strike.

I was amazed by this article as this article already warn us what is really going to happen to the financial market. During that time I don't really care that warning because I did not believe that this is going to happen? Let us share the article that I have received in the month of June 2008.

19/06/2008
Fund managers respond to the RBS prediction of a fully-fledged stock market crash. By Paul Farrow

Fund managers have reacted strongly to the forecast by the Royal Bank of Scotland of stock market crash and warn investors not to act in haste and panic. The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist. But Richard Buxton, fund manager at Schroders, says Mr Janjuah's comments are 'alarmist'.

"If you strip out anything stocks related to oil, energy and mining in the FTSE you will see that the market is already down by 30 per cent over the past year. We are in a bear market which has been masked by the performance of those sectors."

Buxton points out that many UK shares closely connected to the slowing economy are down between 50 and 80 per cent over the year already and it is too late for investors who have yet to protect their portfolios. They will merely crystallise losses, he says.

"Yes, we are in for a tough time and there may be another sell-off but average earnings are cheap and an awful lot of the bad news is already priced in. It is too late to sell, investors need to look through the volatility - I am investing aggressively on downturns. Any falls will be temporary - the falls are simply pushing down on a spring in valuation terms."

Robin Geffen, chief investment officer at Neptune Asset Management says that he finds it 'amusing' that the grim outlook from RBS has emerged just days after the beleaguered bank completed its Rights Issue.

He echoes Buxton's sentiments. "The RBS analyst is a bit late with his forecast, about a year and half late. We have already had a bear market in many areas of the market. The guy has got the financial world confused with the real world where the consumer is real and the building of infrastructure is real.

Any parallels to the stock market crash in the late 1920's are ga-ga." Geffen argues that there is value and opportunities to be found - he has around 10 per cent in cash and is selectively adding to his portfolios. "I still like emerging market, oil, gas and mining stocks."

The RBS report warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

Such a slide on world bourses would amount to one of the worst bear markets over the last century. "Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.

Yet Martin Walker, fund manager at Invesco Perpetual says the market has de-rated to such an extent that he can't envisage the market falling much from here. "Much of the market is trading on historic low valuations, aside from the resource and basic materials. Even if those sectors fall by half it will not make a massive difference to the overall fall in the FTSE."

Walker is keen on the pharmaceutical stocks such as Glaxo Smith Kline and Astra Zeneca because they are uncorrelated to the economic cycle. "There are also great opportunities to invest in companies that are growing profits and growing sustainable dividends. BT is yielding 7.5 per cent - and it is a safe yield – that's fantastic value."

Leading portfolio manager John Chatfeild-Roberts at Jupiter admits that the US economy which is teetering on the brink of a recession is a concern and that stagflation (stagnant economic growth and rising inflation) remains a real threat to all Western economies. But he is looking to invest and make the most of the volatility.

He has recently increased his exposure to Japan which he reckons is the one major economy in the world that will benefit from the re-emergence of inflation. He adds: "The portfolios remain very underweight the UK, which is still in the early stages of a significant consumer slow down. We are underweight financials and have no direct property exposure.

On the other hand, we favour a variety of energy, infrastructure and emerging market plays and think that the current risk/reward ratio of investing in good quality corporate bonds to be very favourable. We will look to increase our exposure to these securities where appropriate. We do expect volatility to pick up over the summer months and look forward to taking advantage of this across the portfolios."

The origin of this article (Telegraph.co.uk)

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