Speaking at the launch of the Lazard Global Equity Franchise Fund, Lazard portfolio manager Warryn Robertson said Australian investors overall have large allocations to banks and resource companies, and warned that these types of companies are not predictable.
“If you stood back 20 years ago and tried to predict what credit growth was going to be in Australia, you would have massively got it wrong. You would have underestimated it and, yes, the banks made a lot of money, [but] there’s no real rationale around which to give those estimates,” Mr Robertson said.
“Today, with the property prices where they are, the bad debt provisions where they are for our banks, predicting where the earnings will go for those banks is very difficult. It is a difficult space to forecast, as is energy and materials.”
Mr Robertson said most SMSFs, excluding his own, contain Commonwealth Bank shares and are massively allocated to the banks.
He is particularly concerned since Australia has not been in a recession for more than 25 years, which may have led to false confidence among the banks and investors.
“I have never worked in a recession, and that is frightening because you don’t know what it's like. You travel to other countries and you see what economic downturns are like, and it’s a very different world,” he said.
“We’ve had the greatest debt-charged housing boom the world has ever seen and we believe the housing market is a major risk for the economy.”
Mr Robertson warned that the banks could be under-provisioning for bad debts because of the lack of recession in the country, and people believe that mortgages are infallible from the bad debt provisions.
“We just think those earnings are 'iffy'. There are calls for the banks to build up capital and that’s code for APRA saying: 'We’re really worried about housing, we need you guys to build a fortress to protect the country'.”