Morgan Stanley's top global strategist said today it is time to shift investments toward Europe, away from the United States, because of the high relative valuations of US stocks and worry about confidence in American markets due to the Enron debacle.
"We are making the case that we are ending the world of US single-power dominance in terms of economic and market dominance," Mr Robert Pelosky said.
"We believe we are going into a world where increasingly Europe and Asia will size up to compete with the US on a regional basis."
Specifically, he said, the firm has moved to an "underweight" position on US equities from "neutral" while moving to an "overweight" position on European equities from "neutral." Morgan remains "underweight" on Japan.
"The tactical issue is Enron, accounting transparency etc. Will it lead either to a credit crunch or an erosion of confidence? We don't think a credit crunch is likely, we do think an erosion of confidence is a concern. That could be the strategic trigger for people to reallocate away from the United States," he said.
"At the same time you have the widest valuation gap between European and US equities that we have in 30 years. Both in the P/E (price to earnings ratio) dividend yield and price-to-cash (ratio)," he added.