AXA's Thomas warns Europe faces US-style 'flash crash'

European markets could see heavy losses in a rapid US-style flash crash, warned Nigel Thomas, manager of the £2.8bn AXA Framlington Select Opportunities fund.

Speaking on a conference call for investors, Thomas said the stock market is unable to look forward because participants are so worried about Europe, making it difficult for managers to quantify uncertainties amid continued political risk.

"At the moment a flash-crash cannot be ruled out, such as the crash we saw in the US where 11% was lost in an afternoon. That could happen," he said.

Thomas highlighted weak GDP growth forecasts for the UK and the US as key headwinds, and voiced concern emerging market growth forecasts could see downgrades.

"Obviously global growth forecasts being revised down is creating issues in valuations. If the 6% EM GDP growth forecast is brought lower by eurozone issues then that is a worry. That is the real elephant in the room," he said.

Thomas added he expects UK PLC earnings to disappoint if EM growth is revised down. However, he was encouraged by comments from oil giant Shell at a conference last week that is sees no evidence of a double dip, while Asian demand remains strong.

Thomas drew parallels between today's economy and that of the 1950s, with the major difference being developments in communications and technology. However good quality companies traded at much higher P/E ratios in the 1950s, he said.

"In the 1950s there was low growth, with a 250% debt to GDP ratio, followed by three years of demobilisation. Now we have 76% debt to GDP ratio. In 1948, there was also the Olympic games - history is repeating itself."

A key theme in Thomas' fund has been the growth of computing and digital content, and he has played this trend through holdings in Person Group, FT.com, and Penguin Books.

With an 8.1% overweight in technology, the manager said carefully selected technology stocks will allow him to profit despite weak GDP growth estimates.

The manager is overweight industrials, technology and consumer, and underweight financials, UK consumer, telecommunications, utilities and mining. Recently Thomas has trimmed his exposure to industrials from 29% to 24%, reinvesting cash in media stocks, such as ITV.

However, Thomas admitted making a wrong call on utilities. He moved from an overweight before the credit crisis down to zero, ahead of share price rises in the sector.

The manager added he has changed tack somewhat over the past year, positioning the fund more defensively over the last 12 months.

The portfolio has returned 24% over three years against a sector average of 6.6%, but has fallen 9.2% against a sector loss of 10.2% over the past three months, according to Morningstar.