une 10 (Bloomberg) -- A “liquidity seizure” arising from Europe’s worsening debt crisis could drag the global economy back into recession, according toPaul Schulte, head of multi- asset strategy in Asia excluding Japan at Nomura Holdings Ltd.
“As Europe’s problems unwind, liquidity is going to seize up. As liquidity seizes up, multiples are going to contract,” Hong Kong-based Schulte told reporters in Singapore today. “Equities are not necessarily cheap.”
Concern that Europe’s sovereign-debt crisis will spread sent the euro to a four-year low against the dollar on June 7 and has wiped out more than $4 trillion from global stock markets this year. Global investors have little confidence in Europe’s efforts to contain its debt crisis, according to a quarterly poll of investors and analysts who are Bloomberg subscribers.
European Union leaders unveiled an almost $1 trillion loan package last month after Greece’s budget deficit expanded to almost 14 percent of gross domestic product, exceeding the EU’s 3 percent limit.
Investors withdrew some $12 billion from U.S. and European equity funds in the week to May 19, the most in almost two years, on concern Europe’s sovereign-debt crisis will slow global growth, EPFR Global said on May 21. Global equity funds are slowly putting money back into the market, absorbing $1.5 billion of inflows in the week ended June 2, the Cambridge, Massachusetts-based research firm said this week.
‘Liquidity Seizure’
“What we are having is a sort of liquidity seizure because of the dislocation in the euro,” Schulte said. “If we are not careful, that could tip us back into recession again.” read more
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