Don’t invest in US or UK warns leading fund manager

The manager of the world’s largest investment fund has slashed holdings in UK and US debt and warned that all asset classes in the countries will drop when quantative easing stops.

Bill Gross, manager of the Pimco Total Return fund supported UK and US government investments but has changed his mind in the fund’s latest investment outlook.

“If 2008 was the year of financial crisis and 2009 the year of healing via monetary and fiscal stimulus packages, then 2010 appears likely to be the year of “exit strategies,” during which investors should consider economic fundamentals and asset markets that will soon be priced in a world less dominated by the government sector,” said Gross.

“If, in 2009, PIMCO recommended shaking hands with the government, we now ponder “which” government, and caution that the days of carefree check writing leading to debt issuance without limit or interest rate consequences may be numbered for all countries.”

Investment should go to more fiscally responsible countries

Investors should look towards putting their money in countries where governments have been more fiscally responsible, like Germany and France, where financial leaders have repeatedly criticised the economic path followed by the US and USA.

“The shifting of private investment dollars to more fiscally responsible government bond markets may make for a very real outcome in 2010 and beyond. Additionally, if exit strategies proceed as planned, all US and UK asset markets may suffer from the absence of the near $2 trillion of government checks written in 2009,” he said

“It seems no coincidence that stocks, high yield bonds, and other risk assets have thrived since early March, just as this “juice” was being squeezed into financial markets. If so, then most “carry” trades in credit, duration, and currency space may be at risk in the first half of 2010 as the markets readjust to the absence of their sugar daddy.”

PIMCO speaks for thousands of institutional and municipal investors worldwide and holds more than $950 billion of funds.