Tags: Pimco | El Erian | Investors | Bumpy

Pimco’s El-Erian: Investors Face 'Bumpy' Ride Ahead

Thursday, 26 April 2012 07:48 AM

The European debt crisis is escalating and investors can't rely on simple risk-on, risk-off strategies and must take more tailor-made approaches to picking assets, as a "bumpy" ride lies ahead, says Mohamed El-Erian, CEO of Pimco, manager of the world's largest bond fund.

Lately markets have swung up and down, with positive economic indicators sending investors to stocks and higher-yielding currencies, known as risk-on trading, and negative indicators sending investors fleeing to safe-haven assets like the dollar or the Japanese yen, known as risk-off.

"We are on this bumpy journey to this unusual destination, which is three to five years" El-Erian tells CNBC.

"The length depends on policymakers, and policymakers have been postponing the deleveraging, which makes this journey even more uncertain."

Investors for example, shouldn't trade German assets over conditions in Greece, where debt and growth dynamics differ greatly, for example.

"There's very different narratives in Europe and people are trying to simplify too much," El-Erian says.

"In Europe, the U.S., this is a day and time to be very differentiated. Don't go for the simple headliners, because they will mislead you."

While governments need to pay down debts, critics of austerity measures say such policies hamper growth, which is more important than cutting spending.

Debate over the balance of cutting spending to streamline debt-ridden economies has taken center stage again, with the U.K. officially reporting that it's in a recession.

According to the U.K. Office of National Statistics, gross domestic product fell 0.2 percent in the first quarter of 2012 after contracting 0.3 percent in the fourth quarter of last year.

"This isn’t supportive of the fiscal consolidation program, so the government is likely to be concerned about that," says Philip Rush, an economist at Nomura International in London, according to Bloomberg.

"The data were bad, and that supports the view that the Bank of England will do a final 25 billion pounds of quantitative easing in May," Rush adds, referring to a stimulus policy under which the Bank of England buys assets from financial institutions to spur the economy.

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Thursday, 26 April 2012 07:48 AM
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