U.S. assets very attractive: Bernstein

Richard Bernstein Capital Management LLC.'s Chief Executive Officer (CEO) Richard Bernstein speaks at the Reuters Investment Outlook Summit in New York June 7, 2010.

NEW YORK (Reuters) - U.S. assets are extremely attractive, especially small-cap value stocks, compared to the rest of the world, but the growth story for multinationals is done, said market strategist Richard Bernstein on Monday.

Bernstein, chief executive of Richard Bernstein Capital Management LLC, also told the Reuters Investment Outlook Summit in New York that from an investment point of view, Chinese stocks will not do well over the next five to 10 years.

Bernstein said that U.S. retail investors have made the mistake of looking abroad for growth when they should be focused on where there is a lack of capital, a precursor of growth as capital migrates to where the needs are.

"The returns on capital are highest where capital is scarce," said Bernstein, who was the widely watched chief investment strategist at Merrill Lynch & Co before leaving in April 2009.

A decade ago capital was scarce in emerging markets, which went on to become the best-performing asset class in equities over the next 10 years after the tech bubble burst in early 2000, Bernstein said.

Small U.S. companies outside of the technology sector cannot get money now, which is why he likes small-cap value stocks in the financial, consumer discretionary and industrial sectors.

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But for Bernstein's outlook to come true, the U.S. economy has to continue to expand, albeit slowly, and not fall again into recession, which he doubts will happen. Weekly initial U.S. jobless claims is the most important economic indicator he watches, he said.

"I'm still reasonably bullish (on U.S. markets), but the key is obviously to watch this jobless claims trend. If it continues to erode, the risk of double dip becomes bigger," he said. The risk, however, of a double-dip is "pretty low," he added.

Bernstein, said that the U.S. assets are extremely attractive, much more than assets from the rest of the world, and he warned that retail investors have been led astray.

"Individual investors have gone out of U.S. equities," Bernstein said. "They were so schooled that the growth is outside the United States that all their incremental equity purchases have been in global funds or emerging market funds or non-U.S. equity funds of some kind," he said.

"That's where I think the mistake they're making is."

Bernstein also said that people had taken too much of a pessimistic stance on the United States.

"You have to be careful in terms of the prognosis, especially for the United States, that this is going to become Argentina."

Chinese equity markets, he said, also are unlikely to outperform.

"I think China is already imploding ... from an investment point, it is," he said. "My argument is as an investor, you don't care about the Chinese economy but about the valuation of Chinese assets."

Bernstein said he believes China is experiencing bubbles in both housing and production and that the country is undergoing a huge wage and price inflation spiral.

"I'm more worried about performance of Chinese stocks over the next five to 10 years than the economy. I don't think Chinese stocks are going to do well.

As for multinationals, "I think that story is done" for them, Bernstein said. "It is all about global growth. With the dollar appreciating, the growth outlook is less. The more European and Asian growth slows, the less attractive the multinational story becomes."

(Additional reporting by Walter Brandimarte; Editing by Padraic Cassidy)