Tags: El-Erian | emerging | markets | crisis

Pimco's El-Erian: Emerging Markets Won't Collapse

By Michael Kling   |   Friday, 30 Aug 2013 10:40 AM

Don't worry about a 1990s-sytle emerging market collapse, says Mohammed El-Erian, Pimco CEO and co-CIO.

Money has been fleeing emerging markets such as India and Indonesia, causing their currencies and stock markets to collapse. Many experts warn that a spreading global financial crisis could be similar to, or even worse than, the emerging market crisis of the 1990s.

But El-Erian says the developing countries a very different now. They have substantial reserves providing safe cushions, as well as better policies, and flexible exchange rates.

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"They have much more self insurance than they did in the '90s. Not for all but for most they do," he told CNBC.

Like many other experts, El-Erian believes the prospect of the Federal Reserve winding down its massive bond buying is putting the squeeze on emerging markets.

"We've been selling a lot to emerging markets," El-Erian said. "We have to care because they are important clients.

The good news is that the sell-off will create bargains, he noted, saying there are already "pockets of opportunities."

His words may not be able to soothe financial markets.

The Indian rupee has continued to fall to new record lows as its currency crisis continues. India has the 10th largest economy and the second largest population. Profits of U.S. corporations, The Wall Street Journal reported, are already being hurt.

"Multiple Latin debt crises and the 1997/1998 Asian emerging market crisis have been forgotten. Now, the risk of an emerging market crisis is very real," stated Satyajit Das, a former banker and author of Extreme Money, according to The Wall Street Journal.

"Since 2008, emerging markets have contributed around 60 to 70 percent of global economic growth. A slowdown will rapidly affect developed economies."

The problem could be worse than in the 1990s because emerging markets now make up a much larger percentage of the global economy. In fact, an adjusted measure of the gross domestic product (GDP), which adjusts for the cost of goods in different countries, shows that emerging markets now have a larger total GDP than the developed world, The Journal stated, citing a report from Quartz.

"If those economies should falter, it's hard to imagine the fallout won’t be felt overseas," wrote Paul Vigna, The Journal's New York MoneyBeat reporter.

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