Aug. 3 (Bloomberg) — The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has “got a long way to go,” said Jim Rogers, a New York-based fund manager who predicted the start of the commodities rally in 1999.

This week’s rebound in equity markets hasn’t persuaded Rogers, 64, to pull out of bets that U.S. investment banks and homebuilders are heading for further declines.

“This was one of the biggest bubbles we’ve ever had in credit,” Rogers, chairman of Beeland Interests Inc., said in an interview from Hong Kong. “I have been and am still short the investment bankers in America. I’m also short homebuilders.”

The Morgan Stanley Capital International World Index plunged 5.3 percent last week, its worst weekly drop in five years, on concern defaults among subprime mortgages may be spilling over to other credit markets and hurting earnings and takeovers. Further losses may be in store even after the index, which tracks $32.6 trillion of stocks, advanced 0.7 percent this week.

“Given the stage of the credit cycle that we’re in now, we would have to expect more negative news popping up,” Beat Lenherr, who oversees $7 billion as chief investment officer for Asia at LGT Bank in Liechtenstein AG, said late yesterday in an interview in Singapore. “The market sentiment is a bit nervous to the degree that every bad news is answered with selling.”

Worse to Come

The MSCI World Index today climbed 0.1 percent, its fourth gain this week, as investors speculated that better-than-forecast earnings will help offset the impact of mortgage losses.

Gains may be capped by further signs of turmoil among borrowers. Accredited Home Lenders Holding Co., the subprime mortgage company being acquired by Lone Star Funds, plunged 35 percent yesterday after saying it may go bankrupt.

American Home Mortgage Investment Corp. yesterday said it plans to halt operations, becoming the second-biggest residential lender to fail this year. The company’s shares dropped 86 percent this week, cutting its value to $79 million, from $1.8 billion in December.

A measure of financial companies such as Countrywide Financial has dropped 3.7 percent so far this year, the only group to decline within the MSCI World Index.

“This is the only time in world history when people were able to buy houses with no money down and in fact, in some cases, the builders gave them money for a down payment,” Rogers said. “So this bubble is the worst we’ve had in housing and it’s going to be the worst before its over cleaning it out.”

Buying China

China is a market that Rogers isn’t selling even as share prices fall, he said. He’s sold his other emerging market holdings as stock gains outstripped the prospect for earnings, Rogers added.

The CSI 300 Index last week jumped 8.4 percent. The index had gained 2.7 percent to a record as of 2 p.m. in Beijing, heading for its fourth weekly gain in a row. The benchmark has more than doubled this year and is the best performer among 89 stock indexes tracked by Bloomberg.

“China’s the next great country in the world and we must learn about investing in China, because that’s where fantastic fortunes are going to be made in the next century,” Rogers said. “I would be looking at China very carefully.”

Source:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aZbGO329eBQs&refer=patrick.net