Hedge fund manager Hendry warns of market correction

By Laurence Fletcher

MONACO (Reuters) - The current rebound in stock markets is a bear rally and could turn by September, according to hedge fund manager Hugh Hendry, who has recently cut exposure to agricultural stocks.

Hendry, who is partner and chief investment officer at Eclectica Asset Management, said that while stock markets have rallied in recent months on hopes for an economic upturn, developed economies are still heading for a 1930s-style depression.

"To date we are maintaining the profile of the economic contraction that we witnessed in the 1930s. Nothing as yet has changed that profile. It's still a profile of concern to me," he told Reuters on the sidelines of the GAIM 2009 conference in Monaco.

"Also, allied to that, we have raised interest rates -- 10-year and 30-year government bonds (yields) have increased and therefore the cost of mortgages to American households has gone up."

Hendry argues this means the recent rebound in markets -- the FTSE 100 .FTSE index is up 25 percent since its March lows -- is a bear market rally.

"That would be my conjecture," he said. "Everyone believes the opportunities today are to be found in ... 'inflationary assets', so Treasury index-linked bonds, gold and ... industrial commodities and the shares of (them).

"I'm still of the belief that we could see further gains in a lot of those consensual assets. But by September I want to be positioned to profit from a movement away from those assets."

Crispin Odey, the founding partner at Odey Asset Management who earlier this year said stocks may be in a new bull market, recently pointed to a possible autumn market fall when he said there is "every reason to be hopeful that a major correction will not happen before September".