Fund manager Kerr Neilson believes there are good companies in the United States, but they have become too expensive and better value can be found in Europe and Japan.
He told a group of financial planners in Auckland yesterday that US stocks are selling at 35-40 times earnings, while Eastern Hemisphere companies can be bought on multiples of 20.
Neilson, who manages the MLC-Platinum Global Fund, and the listed invested vehicle Platinum Asset Management, has gradually moved the portfolios out of the US and towards Europe and Japan.
Currently the unit trust has just three per cent of its investments in the US, 31 per cent in Japan and 34 per cent in Europe.
Neilson says it is a good time to invest in equities as the global economic cycle is at a stage where capital is the benefactor over labour and resources. He warns though that this cycle won't last forever.
"There is harmony in terms of (global) economic expansion," he says. While in the US conditions have been "verging on perfect for companies until recently."
Neilson believes the US market is headed for a correction, however he isn't prepared to put a time frame on it, particularly since he has been bearish on the market for more than two years and that has cost him large amounts of money.
He said that there were signs the US economy was struggling.
"It's not breaking up, but it's struggling now."
Some of the signs that concern him are the large amounts of options that are being issued to management, and manipulation of accounts.
While many commentators expect the resurgence of inflation will be the bullet that kills the bull, Neilson has a contrary view.
"I tend to side with the argument there will be very low inflation going forward."
Two of the key signals that things are starting to go wrong in the US will be earnings disappointments, and wage growth pressure.
Already there have been significant earnings disappointments with 80 out of the S&P 500 companies reporting lower sales in the June quarter compared to the corresponding period last year.
Neilson, who came to prominence in New Zealand as the manager of BT's Pacific Basin Fund is happy not to be a big player in the South East Asian markets at present.
Fellow Platinum manager (and former BT staffer) Andrew Clifford described these markets as "a very dangerous place to have your money" at present.
