Market optimism is unwarranted and any recovery will be slow at best, predicts
Saxo Bank, the trading and investment firm, in a quarterly financial report.

Expectations of imminent global economic recovery are premature because the underlying imbalances that caused the credit crunch in the first place have not be resolved.

Markets have priced in an overly optimistic situation, says Saxo’s chief economist, David Karsbøl.

“In developed economies, the consumer has yet to deleverage, and in developing markets, export-oriented economies will require more time to restructure for sustainable growth in the future. Risk appetite has increased in a nearly uninterrupted arc, as markets boldly predict a V-shaped recovery,” he said.

“However, we believe that the recovery will be flat-to-w-shaped and will take at least another 18 months to work its way through lay-offs, write downs and rationalisations, he said.

His remarks come at a time when investors, including HNW individuals, have been putting some money back to work in the stock market. So far this year, the MSCI World Index of developed countries’ equities has risen by 5.5 per cent since January, but is up by more than 20.6 per cent in the latest three-month period.

Such market moves should not lull investors into a false sense of security, said the Copenhagen-based firm. It warned that what is regards as governments’ irresponsible fiscal policy is and will create massive – and growing – public debt, eventually dislocating bond markets.

“I would advise investors to fasten their seatbelts and buckle up for a bumpy ride as fear and negativity could make a strong comeback when the summer is over”, added Mr Karsbøl.