WHEN the great storm of October 1987 cut a swath through large parts of south-east England it was followed within days by a stock market collapse.

Investors are now anxiously wondering whether the hurricanes Katrina and Rita will presage a fall in US share prices. So far Wall Street appears to be holding its nerve — the stock market even rose slightly in the week after Katrina.

But large question marks remain about the future direction of US shares. One group of people who are far from optimistic are the fund managers polled in the regular global survey conducted by Merrill Lynch, the investment bank.

Only 8 per cent thought the US was the region where the outlook for corporate profits was the most favourable. No less than 38 per cent thought the outlook there was the least favourable, giving a net figure of 30 per cent leaning towards pessimism — the highest for any main region.

Mick Gilligan, of Killik & Co, the stockbroker, says this is not surprising when

US shares are valued fairly expensively at about 16 times earnings compared with about 12 times in Europe and Asia, leaving aside Japan.

He says: “Although US economic growth has continued to be strong in 2005, this has not been translated into good stock market performance. The S&P 500 has risen just 2 per cent this year, compared with rises of about 12 to 15 per cent for the UK, Japanese and German stock markets.”

Paul Niven, head of strategy at F&C Asset Management, says: “Hurricane Katrina has compounded problems that were already hanging over the US stock market. In the short term it is expected to hit growth by up to 1 per cent in the second half of the year, but the longer term problem is the soundness of the US economy.

“Consumers are now burdened by a growing weight of debt, which is likely to limit their ability to spend so freely in future, and the housing market is showing signs of excessively inflated prices.

“The US also has a huge foreign trade deficit. Although this may be partially corrected in the medium term by a fall in the dollar this would not be good news for UK investors because the value of any stock market rise would be eroded by currency losses.”

The weakening dollar is one reason why UK investors have not, by and large, enjoyed gains on their US funds that match the US stock market’s rise over the same period.

Figures from Trustnet, the research group, show that over the ten years to September 1, the S&P 500 index produced a return of 147.3 per cent, but the average North American fund returned only 93.6 per cent. In contrast, UK equity funds outperformed the FTSE 100 index over the same period, returning 116.5 per cent against just 108 per cent for the index.

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