Shares in the United States look more attractive than those in emerging markets over the next few years because the world's biggest economy is less vulnerable to a likely European recession, Russell Investments chief market strategist Steve Wood said.
U.S. equities, especially technology and consumer discretionary stocks, are worth investing in as economic growth in the United States is likely to exceed expectations on the back of the Federal Reserve's monetary easing, he said.
"The recession in Europe is almost certain, and that would affect Asia more than the United States," Wood told Reuters in a telephone interview from New York, adding that countries like China, Singapore and South Korea are very sensitive to global trade.
The Dow Jones industrial average, although down nearly 10 percent from its May peak, is flat so far this year, while Hong Kong's Hang Seng index has tumbled more than 20 percent.
"The U.S. is still the best performing developed economy," Wood said, forecasting real GDP growth of 2.5 percent this year and at least 3.2 percent in 2012.
The Washington-based U.S. fund manager overseas $163.4 billion worth of assets.
Wood said China is unlikely to remain the engine of the global economy given its own problems, such as stubbornly high inflation and slowing growth.
"We (the U.S.) think we're competitive on the growth perspective to Asia in the short term because you (emerging Asia) are tightening, we're loosening (policy)," he said, forecasting a "significant" slowdown in China.
"The monetary policy and the fiscal policy in China are very contractionary, with inflation and bubbles in equities."
Beijing has rolled out a series of policy tightening to cool the red-hot property market and rampant inflation, pushing banks' required reserves ratios to a record high. With the global economy cooling, analysts expect policy to be loosened although an imminent interest rate cut seems unlikely.
On the contrary, the Fed cut rates to near zero almost three years ago and has bought $2.3 trillion in bonds to spur stronger recovery. It has promised to hold rates at exceptionally low levels well into 2013 to assure markets that it will be in no hurry to raise rates when the economy strengthens.
Wood said that Europe's sovereign debt crisis and the need for European banks to recapitalize would create very serious problems in the region's economy and capital markets.
"We will look at it (Europe) as being something of an underweight given that there's real credit market constraint there, which is not the case in Asia, not the case in the U.S.," he said.
Wood said investors should avoid EU debt and added that U.S. Treasuries continued to look favorable.
"Sovereign in Europe is the toxic assets. We will be very, very cautious of government bonds, other than JGBs and U.S. Treasuries."
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