We could be on the verge of a stock market crash and investors should immediately move their portfolios to cash. At least, that’s the opinion of value investing specialist James Montier.
“This is definitely the most difficult time to be an asset allocator,” the fund manager for GMO told City Wire Global at the Value Intelligence Conference in Munich last month. “It’s very hard to find value.” (Source: City Wire Global, last accessed July 23, 2015.)
In response, Montier has started to lower his exposure to the equity market and is looking for safer investment opportunities. Montier currently holds 20% in liquid assets, i.e. cash and derivatives, while a further 30% is invested in fixed income.
“[In the years] 2007 and 2008 we had about 80% of the fund in non-risky assets.” He said, “This has been the first time since that we have had over 50% in very liquid assets.”
Montier sees the economy playing out in one of three ways. First, he describes a kind of “stable hell,” where rates stay low for a long period and investment opportunities are minimal. Second, he describes a kind of market purgatory, where investors shift expectations between a low and high interest rate scenario. Finally, he warns of an “unstable hell,” where investors brace for an economic collapse and stock market crash.
“I can’t tell you exactly how it is going to work. We may see U.S. rates rise in the autumn, but I wouldn’t take it for a given.”
“Investors are constantly asking me how long I’m going to keep the cash position and what is going to be the ultimate trigger for reducing,” he concluded.
“I can’t say that. It does worry me if we are in this stable hell environment but at the moment, I think it’s best to stand a bit and hold onto some dry powder.”
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