GMO's Grantham cuts firm's 'overweight' in emerging markets

NEW YORK, July 31 (Reuters) - Influential market strategist Jeremy Grantham told clients on Thursday to "take as little risk as possible" and slashed his firm's "overweight" position in emerging-market equities to "neutral."

"I now realize that in an unexpectedly bad global economy, the combination of rising inflation, commodity dependence, and particularly high export ratios leave them more vulnerable than I had thought," Grantham, chairman of Grantham, Mayo, Van Otterloo & Co. LLC, admitted in his quarterly letter to investors.

Grantham is sometimes referred to as a "perma-bear" for his dour view on U.S. equities for more than a decade, as he correctly predicted a crash in technology stocks two months before the bubble burst in March 2000. For the last two years, Grantham has told clients that if they choose to risk putting money into equities, they should favor the highest-quality large-cap U.S. and emerging-market shares.

He's changed his stance on emerging markets, however.

Economically, most emerging countries appeared to have decoupled from the slowdown engulfing the United States for 18 months, he said.

"But in a global recession no one decouples," Grantham said. "As German, French, and British growth slowed rapidly in the last six weeks, a global slowdown looks more likely and more painful."

Consequently, GMO, which has more than $120 billion in assets under management, has done "an about-face" and lowered its weightings in emerging equities to "neutral" or just below, Grantham said.

"To critics of this change, I would cite the quote attributed to (John Maynard) Keynes, caught in the same predicament: 'When the facts change, I change my mind. What do you do, sir?'" (Reporting by Jennifer Ablan; Editing by Jan Paschal)