Henderson’s head of European equities has raised fresh concerns about the market he covers, warning that the mistakes made in 2008 are being repeated.
During a recent investment trust conference, John Bennett gave the example of subprime loans being rife in the car industry.
“We now have eight-year auto loans in the US and no dealer has convinced me that none of that is subprime,” he said, describing much of the car manufacturing industry as “lousy”.
“I think the same mistakes of 2008 are being made again, whether it’s by bankers, leasing companies or the car finance companies themselves; I think we are heading for trouble,” he said.
Mr Bennett warned that a number of manufacturing businesses around the world have already entered recession, as what he described as a “third industrial revolution” is on the way, with booms in science and technology.
Talking about the markets more broadly, he expected stocks to fall this year, but said a 20 per cent drop was normal.
“In a bear market, it’s very normal to lose 15 to 20 per cent in equities in a year. But the problem is people seem to think that’s abnormal and refer to a 10 per cent correction as a crash or a crisis, which is nonsense.”
Fears China will “meaningfully” devalue its currency are driving concerns about abnormal markets, he said, adding if China acts to cut the yuan aggressively, then the European market is in “serious trouble”.
Apart from oil, Mr Bennett said there is nothing on a sector level that his team finds very exciting, adding: “I think it’s the year for stocks, not markets.”
Despite suggesting this should play to the strengths of the Henderson European Focus Trust, he admitted this strategy is not working at the moment, because of pressures in the pharmaceutical industry.
In the past three months, the trust has made a loss of 3.4 per cent, against a 2 per cent loss in the European sector, FE figures revealed.
Adviser view:
Ben Seager-Scott, director of investment strategy at Tilney Bestinvest, said: “John Bennett is a manager we hold in high regard, and it’s always interesting to hear what he has to say, particularly at a stock level, since this is where we use him to add value for clients.”
“From here we do see storm clouds gathering on the horizon, meaning downside risks are starting to grow. That said, the timing of such factors is very hard to gauge, and in the meantime the ECB is continuing to pump money fairly indiscriminately into financial markets.
“At some point the market may recognise that QE is not a replacement for fiscal reform and in-and-of itself won’t kick start economic growth, but in the meantime equities could continue to climb this wall of worry.”
katherine.denham@ft.com
