Odey Asset Management founder Crispin Odey believes the upturn in markets in the past couple of weeks could be more than a rally, with banks at the forefront of the turn-round.
Speaking at the Cazenove Capital MultiManager Live event in London on Tuesday, Odey said he can understand why people are more bullish on banks and financials in general and he expects the areas that led the falls last year will lead a bounceback.
Odey said his views are based on the margins that banks have re-established.
He said: “The fact is that today the cheapest mortgage anyone can get today is 4.5 per cent over two or three years fixed and from that you can see that those net interest margins are correcting.”
Odey, who has recently topped up the bank exposure in his Odey European income MAC portfolio, said banks are now far from being “hospital cases”, with many operating at 1.3 to 1.5 times earnings.
“If we are going to see a turn-round from deflation to inflation quickly, we will get a change in asset preference and the rating of equities in banks has been out of favour in the UK since 2000 falling from price/earnings multiples of 25 to six as the market has flourished. Now if we move to a inflationary period in the future, you are going to need real assets and the fact these types of shares are trading so cheaply makes them much more real assets than they are financial assets.”
Odey’s views contrast with those of Invesco Perpetual income manager Neil Woodford, who recently said he did not see banks as an attractive asset for the next three years, stating that investors are unsure of the quantum of bad assets.