Top fund executives are resigned to the probability of a credit crisis lasting many months or even years, with some looking back as far as the Wall Street crash of 1929 for a possible comparison.
Few speakers at the Reuters Funds Summit in Luxembourg were ready to be contrarian and call the bottom to a crisis that began with the US subprime meltdown last year and has seen banking groups Northern Rock and Bear Stearns receive central bank support.
"The Fed interest rate cut is interesting but that isn't going to save the financial world. There's still a huge degree of uncertainty out there," Charlie Porter, chief executive of Thames River Capital, said in an interview on the sidelines of the Summit. "The thing about this one (crisis) is that it's totally different ... I've been in the industry 25 years and it's very different to what we've seen before."
US stocks on Tuesdaal banks able to resolve the crisis in 12 to 18 months, while Polar Capital Chief Executive Mark Kary also sees prolonged economic and market troubles. "The consensus in the market is that some time in the summer will be the right time to buy ... I think I would prefer to be more cautious. This isn't going to be a short-lived economic downturn. It will be something more significant... Will it be like 1929? I don't think we know," said Kary.
With fund executives now viewing the crisis as worse than the bear market of 2000-2003, a slump similar to the 1929 crash that preceded the "Great Depression" of the 1930s suddenly does not look out of the question.
"You have clients asking if it might be like 1929 or the 1930s. Clients might have thought (this was just) a correction. It's no longer "should I buy?" but "should I sell some more?" Guy Wagner, managing director of Banque de Luxembourg's asset management arm.
On September 3, 1929, the Dow Industrials hit a record peak of 381, a level it would not touch again for over two decades. The Dow eventually plunged 48 percent in just 10 weeks. Today, few executives are yet ready to dive in and buy stocks that on pure price/forecast earnings ratios may look superficially cheap. "It's a very comfortable place to be being pretty neutrally exposed to these markets as they stand," Thames River's Porter said.
"Nobody is able to make the call. Somebody at some point is going to be a hero for calling the turn on financials. You've got a lot of money still piling into emerging markets even throughout this thing that's going on and at some point that's going to look really clever, but it may not be yet."
Henri Reiter, director of fund advisory firm Fund Market, said his portfolios cut equity weightings to minimum levels in December and he is now recommending cash. "Right now we are advising them (clients) not to invest, to stay in cash ... We've never had so much cash (in our portfolios)." However, not all fund firms take such a pessimistic view.