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Albert Edwards: Emerging market rout to trigger global recession

@ Didier Marti | Flickr | Getty Images

The rout in emerging market (EM) currencies is unlikely to be contained and could lead to a global crisis, according to Societe Generale strategist Albert Edwards.

Edwards, who is known for his extremely bearish views, argues that the sharp fall in emerging Asian currencies will force China to devalue the yuan in order to remain competitive and that, in turn, will trigger deflation in western economies and subsequently lead to a worldwide downturn.

(Read more: Goldman downgrades emerging Asia currencies)

"At the moment, investors think that the problems are isolated to a few emerging market countries that have allowed their current account deficits to get out of hand. I see this as the beginning of a process where the most wobbly domino falls and topples the whole precarious, rotten, risk-loving edifice that our policy makers have built," Edwards said in a note.

"The emerging market rout is merely the final tweet of the canary in the coalmine," he added.

Edwards believes the consequences of the fallout will be dire, and reiterated some of his more recent drastic forecasts.

Gold will soar to $10,000 per ounce, he said, while U.S. Treasurys will yield less than 1 percent and the U.S. S&P 500 will plummet over 72 percent to levels of 450. He did not give a time frame for these moves, however.

(Read more: Gold within striking distance of bull territory)

To back up his view, Edwards compared the performance of the S&P 500 in 2013 and the index's performance just before Black Monday on October 19 in 1987 - when stocks on Wall Street crashed 20 percent - drawing parallels between the two.

He also referenced recent declines in copper prices, which have fallen 3 percent over the past two weeks and are broadly seen as a gauge of global economic sentiment, as a warning sign for a stock market crash.

(Read More: Stephen Roach warns of global economic crisis)

Edwards also forecast that in the event of a global recession, the U.S. central bank will likely embark on a new and aggressive phase of quantitative easing (QE).

"With fiscal firepower essentially spent, QE will be ramped up exponentially as the Fed doves coo in universal reassurance that they can still save the world. Ultimately, I expect a new phase of aggressive QE will lead to inflation that is unlikely to be containable," he added.

The strategist has had some success with his forecasts in the past including predicting the Asian financial crisis of 1997-1998 and the U.S. housing implosion, but not all of his calls have come to fruition.

Edwards called for China to land hard in 2012, for example,which did not happen. Also, he forecast in July last year that the S&P 500 was on the verge of an "ultimate death cross" and would fall to 666.The index has since continued to add gains notching record highs this year.

(Read more: Is taper talk really behind emerging markets rout?)

'Things aren't that bad'

Not all industry watchers see the recent emerging market rout as a prelude to a wider crisis though, with some arguing the sell-off offers an opportunity to buy.

"We should look at emerging markets and say there are some countries where there will be a recovery," William Davies, head of global equities at Threadneedle Investments told CNBC Asia's "The Call" on Friday.

"India is one where we are skeptical about the near-term prospects. Indonesia is caught in the rout as well but I think it's more likely that we'll get a recovery there," he added.

Meanwhile, Bank of America Merrill Lynch issued a report on Friday arguing that emerging markets are set to be the comeback asset class of 2014.

(Read more: Emerging markets: the comeback kid of 2014?)

"The immediate economic pain in many emerging markets is likely to be intense. But successful long term investing requires buying 'humiliation' rather than 'exuberance'," authors of the report wrote.

—By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie

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