U.S. Capital Relocation May Not Guarantee Economic Gain for the UK, Says Investment Executive
Heads Up! US investors dumping stocks won't necessarily pump up the UK or European markets, a top investment guru has cautioned. The Bank of America's global fund manager survey last month revealed investors are ditching US stocks at record high levels. This mass exodus has weakened the dollar.
While some, like Sir Richard Branson, believe the UK's relative stability could lure overseas cash, others aren't so optimistic. Dan Kemp, chief investment officer of Morningstar, told City AM, "It's an unwinding of the US equity valuation premium, which won't necessarily benefit other markets."
Kemp, while acknowledging that changes in market patterns are only noticed in hindsight, highlighted the dollar's behavior as a clear sign of the US' investment disfavor. He noted that investors are now factoring in a larger risk premium for US businesses, with data suggesting they're finding more lucrative opportunities outside the US.
Initially, US markets plunged post-Trump's 'Liberation Day', but they've recovered since. Kemp warns that this exodus could initially buoy overseas assets, but markets would soon realize they're overvalued and correct themselves.
Although UK stocks are currently "a bit below fair value," Kemp doesn't foresee substantial growth due to the shift. Instead, he's keeping a close eye on China, where he sees a wealth of opportunities. He says investors turned excited when others branded China as 'uninvestable'.
While stocks in China are riskier and require careful analysis, Kemp points out numerous opportunities. He highlighted a range of cheap but globally competitive technology and consumer stocks, offering a promising investment landscape.
When asked about China's lackluster boom despite cheap valuations, Kemp argued, "Most people claim to be long-term investors, but very few can actually practice it. They're looking for a catalyst before they invest."
Insights:
- The US-UK trade deal has had mixed effects on UK stocks, with limited gains for UK carmakers.
- Economic conditions and market trends in the US can influence global markets, potentially causing a downward spiral if the US market sells off.
- China remains a significant investment destination despite trade tensions and high tariffs, offering opportunities in sectors like technology, renewable energy, and consumer goods.
- Investors should adopt a diversified approach, focusing on sectors less exposed to trade tensions and more aligned with China's economic growth strategies.
- https://www.bbc.com/news/business-57230003
- https://www.economist.com/leaders/2019/05/25/why-trade-wars-cause-recessions
- The unwinding of US equity valuation premium might not directly benefit the UK or European markets, as cautioned by Dan Kemp, a top investment guru, despite the US investors dumping stocks at record high levels.
- Kemp warns that an initial boost in overseas assets, due to the mass exodus from US stocks, could soon be followed by a realization that these markets are overvalued, potentially leading to a correction.
- Unlike the US, the UK's stocks are currently 'a bit below fair value', but Kemp doesn't expect substantial growth in them due to the shift from US stocks.
- Instead, Kemp is watching China closely, seeing it as a promising investment destination, especially in sectors like technology, renewable energy, and consumer goods, despite the ongoing trade tensions and high tariffs.
- Investors should be wary of the lure of short-term gains and focus on a diversified approach, investing in sectors less exposed to trade tensions and more aligned with China's economic growth strategies.
- According to Kemp, many investors claim to be long-term investors, but few can actually practice it, waiting for a catalyst before they invest, as seen in the case of China, where stocks are considered riskier but potentially highly rewarding with careful analysis.
