Pimco’s Gross and El-Erian: Seeking Alpha in Brazil and South Korea Over U.S.
Gross says that Pimco is looking to high growth economies for both bond and equity plays. The key for them is not to play the liquidity seeking return trade (like 100-year Mexican paper). Rather they want to find low volatility, high return plays – and they see this more in Emerging Markets like South Korea and Brazil than in the developed economies. This rules out peripheral euro zone for Gross where austerity will not allow the countries to grow enough to reduce their large debt overhang. In my view, we will eventually see defaults here. It is interesting that these countries also happen to be the first high growth countries to move to currency controls.
Gross and El-Erian talk about the politics and the investing during this 14-minute segment with Tom Keene. What I found most interesting was that Gross believes central banks are definitely geared toward a competitive currency devaluation process because of their increasing focus on domestic constituencies. In Gross’ view, central bank co-ordination is not going to be a factor in policy making over the near-term.