Bank shares look set to suffer further as a hoped-for stabilisation in the money markets has failed to materialise – and further turmoil is being caused by the Northern Rock crisis in the UK and interest rate cuts in the US. Despite a rally this week, many are worried that share prices will fall again.
“I think a recession is almost a certainty,” warns Kenneth Murray, one of the most successful investors in financials stocks in recent years for fund manager Blue Planet.
“Alan Greenspan put the chances at 30 per cent but this is underestimating it. The market is turning. People point to low price-to-earnings ratios but these are historic – I think some banks will be reporting losses by the end of the year.”
As a result, not one of Blue Planet’s 12 investment funds has any exposure to UK financial stocks – other than the option to short-sell them for profit if they continue to go down. This approach also gives Murray a luxury that many fund managers invested in financial stocks do not have: freedom to openly criticise the sector.
Some managers will admit to similar concerns, however. “Three weeks ago, things weren’t looking quite as worrying,” says Dan Kemp, fund manager at Williams de Broe. “But the uncertainty of August has been followed by the Northern Rock situation, which has added extra caution for investors sitting on the sidelines.”
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