Odey: US turnaround will spark EM recession

Odey: US turnaround will spark EM recession

by Danielle Levy on Mar 06, 2014 at 15:01

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.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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