Beijing's policy tightening and inflationary pressure could lead to more capital flowing into the US market in the long term, according to Bill Miller, chairman and chief investment officer of Legg Mason Global Asset Management, which oversees over $600 billion of assets.

In a press conference in Hong Kong yesterday, Miller said the US equity market will attract more capital compared to Shanghai's A-share, as no policy restraints and little inflation risk seem at hand.

He said cyclical forces such as an increasingly higher saving rate favors US markets over emerging markets right now, including China and India, where potential economic overheating has raised the inflation risk.

Miller said the tightened policy will lead to a transformation in the mode of the mainland's economic growth, which will be primarily driven away from the current production-focused mode to consumption. "As the tightened liquidity flows will restrain production, the main driver of the country's economy, consumption, will play a bigger role in the future," he said.

Miller also countered the claims that the mainland's policy should be held responsible for the financial crisis and global economic downturn. He said the US's great current account deficits indicated its artificial economic growth was de facto "debt growth".

On the other hand, Asian countries, especially China, hold high foreign currency reserves to maintain safe growth. Therefore, it is way off-base to say that China brought about the crisis, said Miller.

Miller's views on the market have been closely followed for years because he has outperformed the Standard and Poor's 500 index for a record 15 straight years.

Miller said the current consensus forecast for US economic growth for 2010 is likely too low. He said after 10 years of extremely poor relative and absolute returns for US mega-cap stocks, it is time to see better returns over the next 5-10 years. However, he would not be surprised to see a 3 to 5 percent pullback in US markets after recent gains.

"The US markets now are attractively priced both in the long term and short term," he said, adding that technology stocks are very cheap on a historical basis.

US stocks have delivered earnings in each of the past three quarters that were consistently above expectations.

Miller said every time stocks have performed poorly for 10 years, the next ten years provided exceptional returns for investors.

(HK Edition 03/23/2010 page2)