THE US economy is “dysfunctional” and has become so perilously indebted that overseas investors should steer clear, a senior fund manager at Aberdeen Asset Management has warned.
“US consumers and households have never before been as highly leveraged as they are now, which is not surprising given that interest rates went as low as 1 per cent, ” said Bruce Stout. “Americans need to stop spending money that they don’t have and they must begin to save more.”
He said the US economy is made vulnerable because it is dependent on billions of capital inflows from other countries, merely to fund its deficits.
Last week it emerged the US’s trade deficit hit a monthly high of $61 billion in February.
Stout, who has managed Murray International, the oldest and largest investment trust run from Glasgow, since last year added: “Alan Greenspan [chairman of the Federal Reserve] had plenty of opportunities to rein in US consumption, which would have reduced imports and started to address the trade imbalance, but he baulked every time. He’s as responsible as anyone for allowing the excesses to continue as long as they have.”
Stout said US executives are usually so preoccupied with personal gain they have little interest in their companies paying dividends.
“American corporates have no real interest in returning value to their shareholders. Look at what they did with the unprecedented profits they made in the late 1990s; they just blew them. They blew them by overpaying for assets.”
He drew parallels with the damage wrought by Lord Simpson of Dunkeld to Marconi between 1996 and 2001.
Murray International’s core investment aim is to beat the total return of its benchmark and to provide an above average dividend yield. Stout now believes this is better achieved by investing in economies such as Malaysia, Korea, Taiwan, Mexico and even Russia rather than the US.
He added: “The common perception that you cannot get income generating stocks anywhere other than the US is a myth.”
Murray International’s three highest yielding stocks are Hungarian telecoms group Matav (annual dividend yield 7.9 per cent), Belgian bank Fortis (7.2 per cent) and mobile company Taiwan Cellular (7.2 per cent).
The trust has offered a total return of 30 per cent since 2002.
This article was published in the Sunday Herald on 17 April 2005 under headline Aberdeen warns of US investment risk