Having the “best balance sheets in a generation” should allow non-financial companies to keep the world out of recession, according to a London-based hedge fund manager.

Richard Boon, founder and chief investment officer of Artefact Partners, a Macquarie Bank-supported global long/short equities manager, said that he still expected a mid-cycle slowdown because of the “slow-motion train wreck” being caused by the global credit markets and associated contagion. “What began as a sub-prime housing crisis in the US has snowballed into a fully fledged commercial credit crunch for over-exposed borrowers, highlighted by the first run on a savings bank in the UK for over 100 years [Northern Rock],” he said in Sydney last week on a visit to see clients. Nevertheless, the balance sheet strength of non-financial companies, low real interest rates and a still-robust ex-US growth rate should mean that global recession was still unlikely. “Besides, as we have long maintained, asset allocators should recognise that equities continue to offer more attractive risk-adjusted returns than either fixed income or property,” Boon said. Artefact is currently short financials and financially impacted stocks, such as REITs, and long technology and beer and tobacco stocks. The firm has been a big backer of Nokia in the past year, which has risen about 70 per cent in value on year to date. Boon believes Nokia’s share price still has plenty of upside despite the strong performance this year.

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