Pimco Wants to Be ‘Uber-Bullish’ on Emerging Markets, But Can't
Pimco Wants to Be ‘Uber-Bullish’ on Emerging Markets, But Can't
(Bloomberg) -- It’s what comes after the Fed easing that keeps Pacific Investment Management Co.’s Gene Frieda up at night.
The Pimco strategist would love to load up on risk assets and ride the rally that accompanies a cycle of U.S. rate cuts, but he’d do so “only very cautiously.” Speaking in an interview at the Bloomberg Emerging & Frontier Forum in London on Tuesday, Frieda said it’s the threat of a global recession -- which the rate cuts are meant to ward off -- that gives him pause.
“Growth is weak enough that, if it had another shock, it could put the global economy into recession,” he said. “We have generally been constructive for a while on emerging-market currencies but we feel like we’re very close to a pivot point.”
In the short-term, the dovish turn at the Federal Reserve and the European Central Bank is a boon for developing nations as it compels investors to delve into riskier markets to find higher returns. Stocks have advanced the most since January this month and the average yield on local-currency emerging-market bonds dropped to the lowest since October 2016, before edging higher to 4.42% on Wednesday.
But the day after Frieda’s comments, U.S. President Donald Trump served up another reminder that the developing nation rally could collapse in an instant, promising billions of dollars of additional tariffs on China if there’s no progress at the G-20 this week. One after another, speakers at the Bloomberg forum pointed to Washington’s hard-driving approach to resetting trade ties as the lever that could yank global growth into reverse.
Emerging-market currencies may not be “at the epicenter” in a recession, Frieda said, but they will act as a “pressure release valve” as risk sells off and havens gain. He’s “constructive, but not uber-bullish.”
“One has to be quite flexible around the trade uncertainties right now,” Frieda said.
To contact the reporter on this story: Selcuk Gokoluk in London at sgokoluk@bloomberg.net
To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Alex Nicholson, Srinivasan Sivabalan
©2019 Bloomberg L.P.