by Siow Li Sen

THE recovery of markets late last week due to measures to bail out the US financial industry may not last, but the longer-term implications will result in far less profitable banks, said a fund manager yesterday.

The historic week though does not signal the end of the superiority of the US stock market; rather it will continue to be more attractive because it is more transparent, more liquid and will be even more regulated than its rivals, said fund manager Francois Moute, chairman of Neuflize Private Assets, wholly owned by ABN Amro Private Banking.

'Let's hope it (the stock-market recovery of last Friday) lasts more than a few days because the US administration has shot its last bullet,' he said in a BT interview.

'The good news last week is that it saved our jobs, the actions had to be taken otherwise it would be the end of the banking industry,' said Mr Moute, who arrived here from Paris on Sunday.

Neuflize Private Assets offers absolute returns to investors and since it started in 2001 it manages over US$4.5 billion, growing some 50 per cent just this year as investors hate to lose money, said Werner Deprez, ABN Amro Private Banking regional head of discretionary portfolio management, Asia.

'All the accounts we've opened are the absolute returns - investors have no wish to lose money,' said Mr Deprez.

Mr Moute's benchmark AAF US Opportunities Fund invests in US equities.

Mr Moute and his team have ranked No. 1 among 266 fund managers by Citywire League table on a three and five years basis. The US Opportunities Fund is down 2.8 per cent for the year.

The longer-term implications of the trillion dollars worth of bailouts will result in more regulations, further deleveraging and less profitable banks, he said.

'The whole industry has to shrink . . . derivatives and structured products were very profitable for the banking industry,' he said.

Banks will have to be recapitalised, equity will be more expensive and with markets avoiding the lucrative derivatives, banks will find it harder to make profit.

Mr Moute, who started his funds in 2001, has underweighted banks from the start. He felt that banks had taken on too much debt.

Sectors which will make money are in energy, gold, infrastructure and consumer.

Gold with 21 per cent exposure is the single largest holding in the US Opportunities Fund. Mr Moute said gold as an asset is most undervalued and it should be at US$1,600, roughly double its current price.

'Price (of gold) will go much higher because of the monetisation of debt (by the US government) and debasement of the currency,' said Mr Moute.

Basically the United States will be printing money to finance the bailouts announced last week.

As for oil prices, they will be driven by demand from China and India.

Even the global recession will not shrink demand that much because China, for instance, cannot afford to let growth go to zero as politically it will be too explosive, he said.

Neuflize Private Assets only markets to the ultra-rich as the minimum investment for its funds is US$1 million while customised mandates have a minimum of US$10 million.

Since April this year when marketing in Singapore began, some accounts for above US$10 million have been opened, said Mr Deprez.

This article was first published in The Business Times on September 23, 2008.