Multi-managerJul 22 2014

City Financial’s Mark Harris warns over ‘fragile nature’ of US recovery

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Multi-manager Mark Harris has labelled the US economic recovery “fragile”, contradicting many experts who argue it is stable.

The fund manager at City Financial admitted US consumer confidence and employment numbers had “improved”, but he said the downside shocks to the housing market resulting from an increase in mortgage rates were “only now starting to reverse”.

“We believe this highlights the fragile nature of the recovery,” Mr Harris said.

The manager also said capital expenditure by US companies remains “weaker than expected” at this stage of the cycle.

“This is in spite of the fact companies have the cash on their balance sheet to fund such a pick up,” he added.

“General confidence to invest based on a sustainable recovery is lacking and we question whether this may be a structural feature.”

The US economy shrank by an annualised rate of 2.9 per cent in the first quarter, according to the third estimate from the US department of commerce. Many commentators have put this down to particularly extreme weather, so investors are keenly watching for the next reading.

This has led the US Federal Reserve to become “distanced” from forward guidance, Mr Harris said, adding that this “has started to raise doubts over the central bank’s policy credibility”.

Elsewhere, Mr Harris said mid- and small-cap companies in several developed markets, excluding the US, are “still the best hunting ground in a relatively fragile recovery”.