Neil Woodford has revealed his "increasing concern" about the situation in the eurozone as he warns of a European credit crunch and the risk of the UK following Europe into recession next year.
The Invesco Perpetual manager responsible for the £10.5bn High Income and £8.3bn Income funds, who rarely makes huge macro calls, said a "messy Greek default and exit from the euro" are still a probability despite politicians' efforts to come up with a package to solve the debt crisis.
He said the package was "substantially short" of what he hoped for it and has triggered a reaction across European banks in terms of capital raising.
"I believe the process of European bank de-leveraging has started now in earnest which means a credit contraction - the sort of thing we saw in Japan, the Nordic banks post their crisis and in the US and the UK with our own experience of banking crises.
"I am getting increasingly worried about the European growth outlook as a result and the increasing intensity of the crisis - its likely implications on banks and bank credits - that is where the fault line manifests itself."
Speaking a few weeks ago, he added eurozone leaders will do all they can to avoid a Greek default but it still may not be enough.
"There are things that maybe [Angela] Merkel and [Nicolas] Sarkozy cannot control. The risk of something unpleasant happening quite soon has increased significantly. I do expect the eurozone to be in recession next year and the UK could follow suit."
Despite all of this, Woodford has made no changes to his funds as the movements in the markets are so short-term.
"The economic uncertainty is creating massive volatility. It is very difficult for any manager to hedge out the risk in equities. We have to embrace the risk in the asset class in the near term.
"Nothing I have seen in the global economy and the eurozone developments has undermined my confidence in the portfolios' ability to deliver what I expect."
After facing criticism over sticking with his value plays, Woodford has seen a turnaround in the performance of his funds after a year of underperforming. The funds have climbed the rankings of the UK Equity Income sector to sit in the top decile over one year, according to Morningstar.
"We have seen quite a few of my holdings report numbers recently and they have all been outstanding, almost without exception. We have seen upgrades. The performance of the businesses invested is almost as good as I thought it would be despite the very difficult headwinds we have seen."
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