We are living through a remarkable time of change for the global economy, where several anchoring parameters have become variables.
It is a time of friction, collisions and renewal as we journey to a de-levered and re-regulated world with weaker growth dynamics in industrial countries and less political enthusiasm for unfettered globalization and markets.
This brings us back to the image of a car that, having used its spare tire(s), is still embarked on a bumpy road through unfamiliar territory and to a less-than-stable destination. Parts of the car are up for this journey; others will likely hold up but in a tentative and fragile manner; and yet others will fail.
For investors, this translates into a secular period of changing risks and opportunities:
It is a world where several of the old simplifying adages that once brought comfort to investors – such as industrial country governments constitute interest rate risk while emerging economies involve credit risk – require considerable refinement;
It is a world that calls for a broader investment universe and guidelines and, for those who use them, revamped benchmarks that better capture the world of today and tomorrow rather than that of yesterday;
It is a world of significant country, regional and instrument differentiation when it comes to harvesting equity and credit premiums in high-quality corporates, financials and emerging markets;
It is a world where the currencies of the emerging (as opposed to submerging) economies will continue to warrant a greater allocation over time; and
It is a world where the safest of carry will come from duration and curve in sovereigns that, due to their economic and financial fundamentals, are truly core countries in the midst of this global paradigm shift.
Look for PIMCO to continue to work hard on your behalf to combine all this with cyclical considerations and to translate them into the appropriate positioning of your portfolios, consistent with your return objectives and risk tolerance.
Look for us to provide you with the information, expertise and investment solutions that capture the evolution of both the journey and the destination.
And look for us to continue to position our business so that we can provide you sustained value in this changing historical context.
Mohammed El-Erian of PIMCO
http://advisorperspectives.com/commentaries/pimco_051310.php
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