Speaking at the 2008 Morningstar conference in London last week, the former Fidelity UK special situations fund manager said the market draws comparison with the 1970s, except this time it is global.
He said: “Bank lending standards are likely to continue tightening for some time. When banks go from being very free to very restrictive, that tends to be a long-term trend that carries on for at least a year or two.”
Bolton believes that the liquidity crisis is in its final stages but warns that all the markdowns have yet to come out.
He said when investors lose money in AAA and AA-rated structured credit, their behaviour changes and they become risk-averse for some time.
Addressing theories on the decoupling of emerging markets from Western economies, Bolton said: “At a time when people are taking profits, I think you will find that emerging economies will be hit just as hard as the developed ones.”
Bolton said the Bear Stearns’ crisis in March was not the bottom of the market despite sentiment reaching a low ebb.
He said: “My experience tells me it was a pretty big low but the historical precedent shows that the bear market has not been long or deep enough in relation to history and that a lagging overhang on the cycle will see the end of this year and the beginning of next year as the real low in the market.”
From an investment perspective, Bolton believes it is best to stick with quality. He said: “If there was ever a time to focus on balance sheets, this is the year, with an economic downturn and the banking crisis.”