Despite a generally positive outlook, illustrated by a global recovery, strong earnings and low unemployment in developed nations, disaster could be looming, Francesco Filia said.
The chief executive at London-based Fasanara Capital warned the frequency of major market corrections and the historically high debt-to-GDP levels encumbering some of the world’s 10 biggest economies were major danger signs.
Mr Filia accurately predicted the sudden and dramatic market correction in February this year when trillions of pounds were wiped from the value of stocks across the globe.
In a client note, the asset manager warned: “The signposts of a potential market crash are coming in with increasing hubris.”
Mr Filia said the increase in the frequency of value-at-risk shocks – sudden market corrections – demonstrated how fragile global markets currently are, CNBC reports.
His client note identified the VIX global volatility index spike in February combined with a potentially devastating economic crisis in Turkey as early warning signs of “system instability of the broader financial network”.
He likened the current state of financial markets to a “china shop”, warning there are “several elephants” inside which could quickly cause disaster.
He concluded: “If this view is right, a critical transition and a moment of final rupture for global markets may then loom ahead.”
The majority of analyst reports for global markets are far more positive, forecasting continued growth as investors continue to drive prices up in the current bull market.
But Mr Filia’s Fasanara Capital was correct in predicting the dramatic market correction in early February when stocks tumbled.
Speaking several weeks before the sudden drop, Mr Filia warned overheated markets were “on the edge of chaos”.
He likened overvalued stocks to Bitcoin and said like the popular cryptocurrency, their value was not based in reality.
US markets peaked on January 26 and by February 8, they had plummeted by 10 percent. Markets in Europe and Asia followed suit.
Traders looked on helplessly hundreds of billions of dollars were wiped off the value of stocks, and while the US markets have at least partially recovered, they have not risen to their pre-February levels.