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Markets are warned against 'dead-cat bounce'

By Staff Reporter

Published 16/08/2011

A top stock-market guru believes European stock markets will bounce by up to 15% over the next two months - before enduring even steeper falls than in the past few months.

The warning, from Khuram Chaudhry, who has correctly predicted a number of stock-market crashes, indicates that the latest stock-market recovery - in a week that started with £1.5 trillion being wiped off the value of world stock markets - is the beginning of a dead-cat bounce.

"Most major markets are likely to bounce by between 10 and 15% over the next two months," said Mr Chaudhry, who heads up the European quantitative strategy team with Bank of America Merrill Lynch.

"The downside is not over however - stock markets could move down more aggressively after the bounce than they did before it."

According to Mr Chaudhry, if Ireland and Europe moved into recession, their stock markets could fall by at least 20%.

Mr Chaudhry also said he believed it could take another four years for the international debt problems to be resolved and for the turmoil on world stock markets to ease.

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