LAS VEGAS (Reuters) - Hedge fund managers said they are looking beyond the United States for investment ideas as the so-called Trump bump stock market rally shows signs it may be fizzling.

Ben Bernanke, former chairman of the Federal Reserve, speaks at the SALT conference in Las Vegas, Nevada, U.S. May 17, 2017. REUTERS/Richard Brian

After months of gains fueled by the Trump administration's promises of relaxed regulations, tax reform and an infrastructure spending package, U.S. markets this week looked less appealing as the S&P 500 .SPX logged its biggest one-day drop since September and Wall Street's fear gauge, the VIX, spiked.

“Non-U.S. investing is already starting to win. Time to ride that train,” Jeffrey Gundlach, chief executive officer of DoubleLine Capital, told managers and investors in Las Vegas on Wednesday at the SkyBridge Capital SALT conference, one of the hedge fund industry’s largest.

Prominent managers at SALT singled out Europe as a good place to invest. Credit specialists Marc Lasry of Avenue Capital and Bruce Richards of Marathon Asset Management noted the relatively calm political climate there compared to the United States, and touted opportunities around troubled loans and idiosyncratic debt positions.

Non-performing loans, for example, are yielding roughly 6 percent in the United States while yields are in the double digits in Spain even as they have better downside protection, Jack Ross, co-founder of Waterfall Asset Management said.

“Europe is in the third inning while the United States is in the seventh or ninth inning depending on how successful President Trump is,” said Reade Griffith, chief investment officer of Polygon’s European Event-Driven fund.

With the euro trading at attractive levels compared with the dollar, promising earnings growth and companies strengthening their balance sheets, Griffith said that European Central Bank chief Mario Draghi deserves much credit for laying the groundwork for economic recovery.

“He’s a financial superhero and there should be a statue of him,” said Griffith.

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HONEYMOON IS OVER

Hedge fund managers and former Federal Reserve Chairman Ben Bernanke on Wednesday expressed surprise at how blasé markets have been in the face of rising tensions between the United States and North Korea and mounting concerns that U.S. President Donald Trump many not deliver on promises of stronger growth.

Even so, markets were rattled this week as controversies surrounding the White House mounted, including reports that Trump had tried to intervene in an investigation into alleged Russian interference in the U.S. election and that his aides had undisclosed contacts with Russian officials.

“That noise is not good for the markets and that’s what is feeding the selling,” Ray Nolte, chief investment officer at SkyBridge Capital, which invests in hedge funds, said about troubles in the White House this week.

He forecast that markets could drop between 5 percent and 10 percent.

“When it hits it will hit with record speed because we had such a huge bump up and U.S. stocks are priced to perfection.”

Before this week’s selloff U.S. stocks had climbed roughly 10 percent since Trump’s election victory in November.

“All honeymoons end and we are now learning the challenges of living with our new partner,” said Chris Henetemann, who runs structured credit specialist hedge fund 400 Capital Management.

Only a few months ago, Nolte’s SkyBridge portfolio of investment managers focused largely on the United States, he said. Now they have shifted money to investments in Europe and he expects to continue adding assets there later this year.

That strategy could include allocating more money to managers such as Daniel Loeb’s hedge fund Third Point after he recently told his clients that he is seeing opportunities in Europe.

“Dan might like Europe more and we might like Europe more,” Nolte said.

But Europe is the not the only place where investors are turning.

“The valuations outside the U.S., especially in the emerging markets, might be more attractive,” Adam Blitz, chief investment officer at Evanston Capital said.

The MSCI emerging markets stock index .MSCIEF is trading up 14.8 percent year to date with a 12-month forward price-to-earnings ratio of 12.1 percent versus a 5.7 percent gain for the U.S. benchmark S&P 500 index, which sports a 12-month forward price-to-equity ratio of 17.7 percent.

Still, emerging markets were also showing signs of unease on Thursday amid a broad flight to safety as well as Brazil’s own political turmoil.

Brazil's benchmark Bovespa stock index .BVSP was down 9 percent on the day, paring earlier losses that had marked its biggest drop since the 2008 financial crisis. MSCI's emerging market index fell for a second straight day.

Looking ahead to the next winning investment, Cartica Management chief CEO Teresa Barger, who currently likes investments in India, said it was bound to be small and obscure; “it may be Nigeria.”