Time to invest in the recovering US economy

Over the last two years, the credit crunch has cost millions of workers their jobs; savers have seen billions of dollars wiped off the value of their pensions and investments.

The US may have led the global economy into the downturn, but there are signs that it is about to lead the rest of the developed world back out again. In contrast to the timorous response of European leaders, President Obama’s administration has reacted vigorously to the downturn, using an unprecedented fiscal stimulus package to offset the sharp slowdown in consumer demand and business investment.

It seems to be working. Economic data in the US appears ‘less bad’ than it did even a few weeks ago. Credit markets are showing signs of freeing up, which should allow companies to start borrowing – and investing – again. M&A activity is returning. Companies have been able to issue new equity. The confidence of US consumers is rising and industrial activity surveys are picking up.

So the recent recovery in the US stockmarket has been underpinned by concrete positive change; the rally could have further to run. On a short-term view, however, we are neither bulls nor bears. After a 35 per cent bounce off the bottom, it would be quite reasonable for the market to pause for breath over the summer.

Instead, it is on a medium-term view that we believe selected US stocks offer compelling value – not because macro-economic trends are improving but because of the reasonable valuations of  US’s numerous first-rate global companies.

The US boasts a disproportionate share of the world’s highest quality and most enterprising companies. The US stockmarket is a vast pool teeming with entrepreneurial life. Many US companies are world-leaders: Apple brought us the iPod; Google is a company so omnipresent to have become a verb.

By focusing on finding these 'survivors' – those companies that can survive and flourish despite the recession – stockpickers currently have an outstanding opportunity to generate long-term returns. Despite the significant run up in markets since March, these stocks are still well below their historic price/earnings multiples. So, despite the grim headlines, the US remains the land of opportunity – and home to some of the world’s most interesting companies.

David Forsyth is manager of the Martin Currie North American Fund, the views expressed here are his own.