Fears that shares and dividends could plunge were heightened on Tuesday as City analysts predicted a potentially "cataclysmic" outcome to growing economic turmoil.
Economists at RBS said the economic environment was looking "very much like 2008" and equities were likely to fall by between 10% and 20%.
The broker is forecasting that oil prices, already down to just above US$31 a barrel, are set to hit US$26 and risk falling to US$16.
It also said the global economy is too weighed down by debt to expand well and that global disinflation risks turning into deflation in 2016.
RBS made its predictions last November and says events in the last six weeks, particularly in China, have proved it right so far.
The broker's head of European economics, rates & CEEMEA [Central & Eastern Europe, Middle East & Africa] research, Andrew Roberts, said: "I think my ‘severe downside for the world’ call is looking OK so far. The downside is crystallising. Watch out. Sell (mostly) everything."
The RBS note came after US heavyweight JP Morgan on Monday echoed the concerns about the outlook for equities and urged investors to sell stocks on any upturn.
JP Morgan equity strategist Mislav Matejka said: "Our view is that the risk-reward for equities has worsened materially. In contrast to the past seven years, when we advocated using the dips as buying opportunities, we believe the regime has transitioned to one of selling any rally."
Separately, economic data group Markit said dividends could be at risk as economic developments last year filter through to companies' pay-out policies in 2016.
It forecast that the pace of global dividend growth would nearly halve in 2016 to 5% and that payments to commodity investors would fall worldwide.
Global markets have been on a roller-coaster ride since the start of the year as continued turmoil in China has shaken investors.
The FTSE 100 Index started the year at 6,242 and has since plunged below the 6,000 threshold to stand at 5,956 in mid-session trading on Tuesday.
Investors took fright at the devaluation of the yen, triggering the so-called new "circuit breakers" put in place by Chinese regulators to prevent market crashes.
The Chinese downturn has sent oil prices tumbling and geopolitical tensions have weighed further as Saudi Arabia cut off diplomatic ties with Iran.
The Saudi-Iran stand-off has hit hopes that OPEC would ease fears about a global supply glut by cutting production or at least formally limiting output.
RBS said the European Central Bank was unlikely to raise rates any time soon as inflation has fallen back after picking up during the middle of last year.
China's slowdown could turn into an "L-shaped recovery" and a US downturn may be nearer than some people think.
The inconclusive election in Spain could lead to fresh elections next month and further uncertainty, and in the UK, weak wage inflation, concerns about global growth and fears about a possible UK exit from the EU mean an interest rate rise is unlikely to come soon.
Roberts said investors should be cautious in 2016. "We have been warning in past weeklies that this all looks similar to 2008.
"We dust off our old mantra: this is about ‘return of capital, not return on capital."