Rathbones duo remains bullish on US

By Sam Shaw

Added 5th October 2016

David Coombs, head of multi-asset investments at Rathbones and senior research analyst Mona Shah have co-authored a report making the case for US equities versus their European counterparts.

Rathbones duo remains bullish on US

While the world waits with bated breath for the result of the November presidential election, Coombs and Shah appear ambivalent.

“With November’s presidential election in mind, we highlight the historically low impact of politics on the US economy. While both candidates appear at this stage to be more interventionist and/or protectionist than their recent predecessors, the checks and balances of the US political system are designed to limit executive power.

“Therefore, while we acknowledge the risks attached to both candidates, we continue to favour the US. Besides, with elections in Germany and France in 2017, and the rise of populist parties across the continent, there are also significant political risks in Europe.”

Looking beyond the tech unicorns, the pair points to certain “global icons” – Google, Amazon, Walt Disney and Berkshire Hathaway, and others that while not unique in their space, showcase higher quality characteristics than their European peers. Some of these “global leaders” include Exxon, Coca-Cola, Visa and Nike.

“To support our view that the business environment in the US is different from that in Europe, we identify companies in the US that simply don’t exist here. There are very few European equivalents of the long list of US technology stocks that have emerged in recent decades.”

Coombs and Shah believe the US is an easier place to do business, compared with the fragmented language, currency and legal frameworks of Europe.

“[This means] it is relatively straightforward for companies to operate across some or all of the 50 states, even though there are also local laws and taxes.”

The report said: “While the European single market undoubtedly helps businesses through common standards and joined-up transport systems with no border controls, it is clear that the existence of different languages, legal systems and currencies make the European single market a far more complicated proposition than the US.”

Coombs and Shah added: “While the EU has made great strides in establishing a single market for goods, the same cannot be said for services, where peculiar national standards and idiosyncrasies often prevent effective cross-border competition.”

The report cited the International Monetary Fund’s ranking of countries by competitiveness, in which the US is third to Switzerland and Singapore.

The IMF excerpt said of the US: “Although many risks arguably loom on the horizon, the country’s recovery can build on improvements in institutions— government efficiency is rated higher than in previous years—its macroeconomic environment, and the soundness of its financial markets. [Its] major strength is its unique combination of exceptional innovation capacity, large market size, and sophisticated businesses.

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