King predicts world market crash

16 November 2007

Mervyn King, governor of the Bank of England, has warned that global shares could be facing a major crash.

He said at the Bank's Inflation Report that the US sub-prime crisis plus the ensuing credit squeeze will affect Western equity markets more seriously than has been felt so far.

Mr King said:"It is very striking that despite the developments we've seen in the last three months, despite the stresses and strains in the banking sector, equity prices are higher now than they were in August This is true around the world, and in emerging markets they're 20% higher. There must be some downside risks there.

"That's factored into our projections. That's the bigger risk to the global economy than the narrower one focused on the banking sector.

"The repricing of risk hasn't really fed through to equity markets, and if there were to be an adjustment of risk premia in equity markets with a fall in asset prices then that could have a bigger impact on the world economy."

HSBC's Stuart Gulliver agreed with the governor's views.

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