by David Chaplin
Glass told analysts and media yesterday that the rout in the finance company sector looks certain to continue this year as the crisis moves "beyond the mis-selling of risk" and into "an old-fashioned run".
"Maybe three or four finance companies will come through... the sector must consolidate, just look at the maths," he said.
The observation was just one in Brook's generally bearish view of the world economy with the fund manager citing the global housing bubble as its major concern in the year ahead.
Justin Edgar, Brook analyst, said the rapid cooling of the housing market in the US, sparked by last year's sub-prime mortgage meltdown, was likely to spread to the rest of the world, particularly in countries such as New Zealand where house prices have spiralled out of control.
"New Zealand property may well be the most expensive in the western world," Edgar said.
The manager said New Zealand housing was over-valued by about "30-40%" and, along with the finance company debacle, created some "real concerns" about the local economy.
As well Brook said the credit crunch, high valuations in the small-cap sector and in the Chinese equity market, and the spectre of looming inflation contributed to its defensive stance.
"We remain cautious and defensively positioned," Brook said.
"In all probability, this will turn out to be a healthy correction but will take time to work through."
Consequently, the Brook Tasman Fund - which invests in Australian and New Zealand equities, now has a 40% weighting to cash and only 17, mainly large-cap defensive stocks, in its portfolio, according to Glass.
He said while the fund's high allocation to cash might make it "boring to watch... in these markets boring is good". He said while in absolute terms the fund was down 4% this year it beat its benchmark - a mix of the NZX50 and the ASX/S&P200, which are down almost 10% and 11.5% respectively for the year to date.
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