Massive infusions of monetary stimulus by the Bank of England are an act of ‘economic vandalism’ likely to rob Britain of its perceived ‘safe haven’ status, according to Bruce Stout, fund manager at Aberdeen Asset Management.
‘It’s worse than a drug; it’s economic vandalism of the highest order, printing money. It has no function whatsoever,’ the manager said on Thursday at a presentation in central London on Murray International, the investment trust he runs. Murray International is a Citywire Selection Star Pick.
‘It cannot reignite the credit cycle. But that’s what they think it can do... Because the credit cycle is bust, and cannot kick in again at any interest rate, because... borrowers don’t want to borrow, and lenders don’t want to lend.’
He added that by unleashing the stimulus, known as quantitative easing or QE, policymakers had created a “pushing on a string” liquidity trap. ‘What you don’t need is somebody printing money, because the ultimate end of quantitative easing is currency debasement – it always is,’ the manager warned.
The comments came after the Bank voted to pump another £50 billion into Britain’s flagging economy last month, in addition to the £275 billion it has already injected.
Stout, who also runs Aberdeen Global World Equity, an open-ended fund, warned that market sentiment could turn against Britain, eroding its ‘safe haven’ status.
‘You keep printing sterling, and keep printing sterling, and keep printing sterling, the market can come in one day and say: “We’ve had enough of sterling.” And it goes, because there’s no value in paper money,’ he said.
The manager pointed out that he was not altering Murray International’s defensive positioning, because he believed politicians in the West had exhausted ‘all of the policy options’ to deal with the ongoing economic crisis.
‘There’s no change to the portfolio as it is; cyclicals are not cheap enough to get us interested,’ he said. ‘We believe there’s the potential to lose a lot of money in cyclicals in the next 12-18 months, so we will stay clear of them.’
Stout added that he favoured companies with strong balance sheets and well-covered dividends.
In the past five years, Murray International shares have risen 96.5%, and its net asset value (NAV) has gained 74.6%, while the FTSE World stock index, a benchmark, has taken on a far more modest 27.5%. The shares – which yield 3.8% – currently trade at a premium of 6.3% to NAV, somewhat wider than their average premium of 5.8%.