Wealth Manager - the site for professional investment managers

Register to get unlimited access to all of Citywire’s Fund Manager database. Registration is free and only takes a minute.

Odey: US turnaround will spark EM recession

Odey: US turnaround will spark EM recession

Renowned hedge fund manager Crispin Odey has warned that a US turnaround this year could spark a recession in emerging markets.

Odey warned that further pain is yet to hit the emerging markets, particularly those with current account deficits, once it becomes apparent that QE will come to an end on stronger growth in the US. He says the UK, with its growing current account deficit, may also prove dangerously positioned going into an election next year.

‘Our point is when the US turns around, that is when tapering will come to an end and that is when emerging markets have to have their recession - although not all of those are running large current account deficits. The UK also seems a dangerous place to be running into the election next year,’ he said.

He uses South Africa as an example, where in spite a weakening rand more recently he says there is still no real evidence of any ‘shake-out effect’.

He explained: ‘QE has allowed a country like South Africa to run a current account deficit that is funded by negative real rates for as long as they wanted. What it tells you is there will be a continued run on the rand until they are forced to raise interest rates and have a domestic recession, as there is no good reason at the moment for people to invest in that country.'

In Odey’s view there are many countries like South Africa, which he says ‘don’t yet understand how the world has changed and they won’t really change until the US turns around and starts to grow’.

On the back of his view of a US revival, Odey rebuilt positions in US housebuilders during the third quarter of last year and says he is still seeing upside at current valuations.

Pointing to Warren Buffett’s prediction that the US return to 1 million housing starts per year, which is below his forecast of 1.5 million, he says that a price to earnings ratio of  five to six times for US housebuilders ‘is just a bit too cheap’.

Odey was allotted seven million shares in AO’s IPO, having applied for 40 million. ‘It was very difficult to see how they would not do well. The question was how well they would do.’

Delta Airline, Sky Deutschland, GKN and CF Industries feature in Odey’s long book. The fund manager’s short book includes inventory names he believes are breaking down as the bull market runs out of steam. These include stocks with emerging markets exposure such as Unilever, Ashmore, Coca Cola, Procter & Gamble alongside Aberdeen.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play JPM’s Negyal: Back divis to temper EM volatility

JPM’s Negyal: Back divis to temper EM volatility

Omar Negyal, co-manager of the JPMorgan Global Emerging Markets Income trust, says a dividend approach to emerging markets reduces the volatility of investing in the asset class.

Play WMR: Why Russia will lose this war

WMR: Why Russia will lose this war

Author and journalist Adam Lebor believes a perfect storm is brewing when it comes to the Russian economy. .

Play WMR: Gerard Lyons warns Asia is the real risk, not Russia & Ukraine

WMR: Gerard Lyons warns Asia is the real risk, not Russia & Ukraine

Chief economic adviser to London mayor Boris Johnson outlines the geo-political risks in Asia and explains why the risk of another eurozone crisis must not be underestimated.

Your Business: Cover Star Club

Profile: 'new normal' now is as dangerous as when it was applied to tech

Profile: 'new normal' now is as dangerous as when it was applied to tech

7IM's CIO Chris Darbyshire says he has been re-energised by his new role, but has little time for 'new normal' doom-mongers

Wealth Manager on Twitter