Jeremy Grantham: Slash holdings in ‘risky’ emerging markets
(NEW YORK) Jeremy Grantham, chairman of Grantham, Mayo, Van Otterloo & Co, told investors to cut holdings of emerging-market stocks, reversing his recommendation earlier this year.
‘Our advice until now was very simple: take as little risk as possible except for emerging markets,’ Mr Grantham, 69, whose Boston-based firm oversees US$126 billion, wrote in his quarterly letter to investors. ‘Now it is even simpler: take as little risk as possible.’
Mr Grantham said that he favours holding cash instead of owning stocks because ‘there are likely to be much better investment opportunities in a year or two (or three) than we have seen for 20 years’. Dubbed a ‘perma-bear’ for his dour view on US stocks for more than a decade, Mr Grantham correctly predicted a crash in technology shares two months before the bubble burst in March 2000.
The money manager cut his weighting on emerging-market stocks to ‘neutral or just below’. In the US, the Standard & Poor’s 500 Index will tumble another 10 per cent to 15 per cent by 2010 as global growth slows and inflation accelerates, he said. Until then, the outlook for commodities and equities in developed and emerging markets looks poor, he said.
‘I underestimated in almost every way how badly economic and financial fundamentals would turn out,’ Mr Grantham wrote in the letter. ‘Events must now be disturbing to everyone, and I for one am officially scared!’
In January, he said that people wanting to invest in stocks should put their money in the ‘highest-quality’ emerging-market and US firms. China, the world’s fastest-growing major economy, faces ‘dangerous times’ as the country copes with higher fuel costs and slowing global growth that reduces demand for exports, the money manager wrote.
‘The combination of rising inflation, commodity dependence and particularly high export ratios’ along with the slowdown make emerging-market stocks ‘more vulnerable than I had thought’, Mr Grantham said.
All of the 23 developed nations in the MSCI World Index except for Canada have experienced bear-market plunges of 20 per cent or more since September as credit losses surged and record commodity prices stoked inflation. Brazil last week became the 23rd out of 25 developing countries in the MSCI Emerging Markets Index to enter a bear market. Only Jordan and Morocco avoided such slumps. - Bloomberg
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