Pimco CEO Mohamed El-Erian recommends buying Brazilian government bonds and Chinese currency, or renminbi, futures, as developed nations face major debt woes.
He, like others, is concerned about the problems of Greece, Spain and Portugal, which have raised concern about sovereign debt contagion in Europe.
“We have been moving up in quality, which has meant certain sales of high-yield names,” El-Erian told Bloomberg.
“We’ve been very selective on which sovereigns we are exposed to.”
He doesn’t see the U.S. in the same danger as Europe.
Indeed, he believes U.S. government bonds will hold up better than Europe.
“It makes a big difference if you are the reserve currency,” El-Erian told reporters in a recent press conference.
“It makes a big difference if you are the provider of the deepest and most predictable financial markets.”
Pimco prefers Brazilian debt over that of “much of the G-7” countries, in part because of the central bank’s “hawkish” inflation stance, Michael Gomez, co-head of emerging markets for Pimco, told Bloomberg.
He also sees China easing its currency restrictions this year, allowing the renminbi to appreciate.
El-Erian predicts China’s economy will grow 6 percent or more in coming years.
His Pimco colleague Bill Gross agrees on the attractiveness of emerging markets.
“Risk/growth-oriented assets, as well as currencies, should be directed toward Asian/developing countries less levered and less easily prone to bubbling,” Gross wrote in his monthly investment outlook.
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