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UPDATE 2-SocGen analyst Edwards sees stocks at lows next year

* Sceptical of efficacy of extreme policy responses

* Anticipates recession for Chinese economy

* Expects demand for Japanese government bonds to wane (Recasts with comments)

HONG KONG, Nov 10 (Reuters) - Albert Edwards, an analyst at French bank Societe Generale SOGN.PA who correctly predicted the Asian financial crisis, sees global equity markets at a new low and chances of another global recession in 2010.

Edwards, a prominent equities bear and a long-term critic of the policies of Western central banks, is sceptical of popular opinion that extreme policy responses will safeguard the West against a repeat of Japan’s ‘lost decade’ of the 1990’s.

“People should question the happy clappy nonsense from sellside analysts,” London-based Edwards, a global strategist with SocGen’s Corporate & Investment Banking group, told a media briefing.

“We are not saying that people should not participate in the rallies -- that will get you fired as a fund manager -- but they should not become too convinced of the recovery,” he said.

Edwards is more worried about Japan in the near term as he expects the world’s second-largest economy to run into difficulty funding itself next year as demand for Japanese government bonds wane and bond yields rise further.

The significance of higher Japanese government bond yields was that it would cause some Japanese investors, who have been investing overseas in search of higher returns, to bring that money back home, he said.

More than a decade ago, Edwards coined the phrase “noddynomics” to describe the macroeconomic views of then Malaysian prime minister Mahathir Mohamad.

Edwards expected China to go into a recession at some point as cyclicality catches up with the economy, and called people’s excessive faith in growth stories a “sick joke”.

He said while inflation was a concern, deflation was a bigger worry in the near term, at a time when western and Japanese governments were effectively insolvent.

“If we get an economic downturn next year, when you have got core inflation at half a percent, I think there will be a real deflation panic, a bit like in Japan.”

Edwards picked grains like corn, wheat and soybeans as a more secular bet on China’s growth story over other commodities and their related stocks as these have lagged the broad rally in the markets.

"Equity valuations have been totally ridiculous for the last ten years but I'm less bearish than I was two years ago because we have had one round of correction," said Edwards, who thinks the S&P 500 .SPX should have dropped to 500 points last year to hit the bottom of the valuation cycle.

The index is now trading close to 1,100 points, bouncing off a multi-year low of around 666 points in March. (Editing by Chris Lewis and Muralikumar Anantharaman)

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