The billionaire head of insurer Fairfax Financial Holdings Ltd. (TSX:FFH) said Friday that he believes financial markets in North America and Western Europe are still threatened by potential weakness in China's economy and emerging markets.
"We have said it for some time. We believe there continues to be a disconnect between the financial markets and the underlying economic fundamentals," he told analysts during a conference call after the company's latest earnings release Thursday.
Watsa said Fairfax is responding by staying particularly cautious in the short term.
The company has about $5.9 billion of cash in its coffers, representing 23 per cent of its total investment portfolio, to take advantage of any acquisitions opportunities, Watsa said.
"As a result in the short-term our investment income will likely be reduced," he added.
A storm of uncertainty has been gathering over the past few months on fears that the Eurozone could fall back into recession and put a damper on improvements in the U.S economy.
Oil prices have fallen to four-year lows this month as demand slides but production remains abundant.
Watsa stated his concerns with stock markets earlier this year, and his opinion hasn't wavered since.
Fairfax, which reports in U.S. dollars, returned to profits during the third quarter helped by gains on its investment portfolio.
Net earnings attributable to shareholders were $461.2 million versus a net loss of $571.7 million in the year-earlier period.
On a per share basis, the earnings were US$21.10 compared with a loss of US$29.02.
Net premiums written by the insurance and reinsurance operations decreased to $1.52 billion from $1.57 billion, while net investment gains were $493.7 million versus net investment losses of $828.6 million in the 2013 period.
Both Watsa and Fairfax president Paul Rivett are part of an ongoing investigation by the Quebec securities regulator over possible insider trading or tipping. Insider trading happens when an individual has access to confidential information and then uses it to trade on a stock exchange.
In August, Fairfax announced plans to acquire Pethealth Inc. (TSX:PTZ), a medical insurer for dogs and cats based in Oakville, Ont., for $100 million. The proposal was approved by Pethealth Inc. shareholders on Thursday and should be complete by the end of this year, the company said.
On Friday morning, Fairfax shares rose about one per cent, or $4.85, to $513.32 on the Toronto Stock Exchange.
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