Chinese GDP (gross domestic product) growth could balloon to 8 percent next year and prompt a significant spike in domestic stocks, according to one economist's "outrageous predictions" hotlist for 2017.
This optimistic view is just one of ten outlandish scenarios posited by Steen Jakobsen at Saxo Bank. Although not a house view by the Danish bank, the list is an annual exercise which seeks to throw some outlier possibilities into the regular mix of year ahead predictions rolled out by financial pundits at this time of year.
Jakobsen says China could forge an enormous fiscal and monetary stimulus which opens up capital markets, prompts buoyant service sector growth and successfully delivers its longed-for transition to a consumption-led economy. At this point, "euphoria" would help the Shanghai composite index shoot up to 5,000 points - around a 55 percent premium to its level on Wednesday.
Speaking to CNBC on Wednesday, Jakobsen, the chief economist at Saxo Bank, said the future impact of China should not be underestimated.
"The total spending by the Chinese consumer in the next fifteen years will be more than the total size of spending in Europe," he claimed.
Turning specifically to the opportunities presented in financial services in the country and wider Asia-Pacific region, Jakoben added, "As someone who is on the ground in Shanghai as a bank, we have seen more ability to do business over the last 24 months than we've done in the last 24 years. hings are changing on the ground."
The list also suggests Brexit is replaced by Bremain as swelling fears of global populism spur the European Union (EU) into a more cooperative stance towards the U.K., allowing the latter so much more control over immigration that it is enticed into staying within the bloc.
Unsurprisingly, several of the outrageous predictions focus on central banks with Jakobsen saying President-elect Donald Trump's new "testosterone-driven fiscal policy" alongside rising U.S. interest rates and a sharply higher U.S. dollar could cause a jump in 10-year U.S. yields to 3 percent. The resulting market panic would cause the Federal Reserve to respond by fixing the 10-year government yield at 1.5 percent via the introduction of "QE (quantitative easing) endless", according to Jakobsen. Bond markets would then post their biggest rally for seven years, he added.
Investors must stick to the safe end of the credit spectrum, however, as the Danish economist also suggests the high yield default rate could roar up past 25 percent – compare this to its long-term average rate of 3.77 percent – as the limits of central bank intervention are reached and the yield curve stages a sharp steepening.
Jakobsen acknowledged that many outcomes would depend upon President-elect Donald Trump's actions – a topic on which the chief economist sounded a bearish note, saying the Republican would be "the beginning of the end."
"His policy so far … has nothing to do with progress, has nothing to do with what needs to be done in the U.S.," he warned, clarifying that he was speaking from an economic point of view.
Looking back at his predictions for 2016, some of the key scenarios posited – such as oil rebounding to $100 a barrel, Democrats winning the U.S. presidential election in a "landslide" and the euro strengthening against a tumbling dollar – have proven to be rather far off the mark.
However, amid last year's more on-the-money suggestions, Jakobsen said silver would rally 33 percent during 2016 – while the metal is currently only around 20 percent higher, it did jump as much as around 50 percent during the summer before receding.
And while describing the rally seen this year in emerging markets as "turbo-charged" may be going one step too far, the MSCI Emerging Markets equity index is up nearly nine percent at this early December point.