Trust manager fears world markets are heading for 2008-level crash

THE most bearish predictions for the global economy are increasingly plausible as the weak US economy threatens markets, the manager of the Scottish Investment Trust has warned.

The outlook for the UK economy for the coming year is also bleak as the high street faces more doom and gloom, said John Kennedy, at the helm of the 752 million Edinburgh-based trust since 2004.

The global growth trust has enjoyed strong results of late, posting a share price return of 11 per cent in the six months to the end of April, outstripping both the UK FTSE All Share and the FTSE All-World index over the same period.

But Kennedy told Scotland on Sunday of his fears for the global economy following warnings from some economists of a potential crash to rival the 2008 crisis. The famously bearish Albert Edwards, strategist at Societe Generale, last month forecast a stock market plunge of up to 70 per cent.

"He put forward a plausible scenario for a major collapse to very low market levels," said Kennedy. "The risks are major that we will have a spell of economic weakness that sends markets back down. There's a 30 to 40 per cent risk of a major disappointment and an Edwards-type correction in markets, but it's a buying opportunity for long-term investors."

The UK is also a concern, he added. Just 25 per cent of the trust is held in the UK, down from more than half just eight years ago, and they are stocks with limited or no exposure to the UK consumer.

"We are wary of the domestic UK economy and what it'll mean for UK-sourced earnings. The pressures on the high street are coming through now; we only see more doom and gloom on that front," he said. "No interest rate increase is likely in the near future - there's no real need for one. Pressures on employment, salaries and pensions means times are hard for everyone. It will change and it will be discounted, but not in the next 12 months."