Andrew Balls: 2011 won't resemble 2008
Head of Pimco fund European investment portfolio is skeptic when it comes to old continent, recommends increasing exposure to emerging markets. US will gradually lose power, he believes, although investors still regard it as safe haven
These are critical times for the managers of Pimco, the world's largest mutual fund which manages over a trillion dollars in funds. What they say and do resonates through global markets, particularly during troubled times.
"We are used to dealing with these kinds of market instabilities," says Andrew Balls, head of Pimco's European portfolio and a member of the fund's global investment committee, in a special interview to Calcalist. "So it is business as usual. But we still are very busy in providing information to clients to help them in their decision making process."
Miniscule growth forecasts
As someone who heads Pimco's investment activity in Europe, which is one of the crisis's epicenters, what is you forecast for the upcoming year?
"I do not believe that 2011 will resemble 2008; however, policymakers must show that they're operating in a credible fashion to mend the situation that was created. The problems in Europe are not exclusive to one or two countries alone, rather they are systemic to the entire Euro zone. At the moment, concerns are about the ability of the ECB to buy government bonds.
"On the US side I would be concerned about the weak growth prospects and the ability of the political system to promote growth, including structural reform in the US budget. Concerns are that the harsh reality in the US and Euro zone might spill over to other areas, mainly to the emerging markets."
What countries have the highest risk of default?
"Euro zone governments, which don't have their own currency, are at a greater risk of default than countries with their own currency such as the US and the UK. Greece has already unofficially declared a default, but the more important thing in Europe is the continuing risk that the problems in Greece will engulf more countries, like Italy and Spain."
In the meantime, Balls told Calcalist, "bond spreads between Spanish and Italian government bonds and German bonds stemmed from a technical spillover effect of the crisis, and not because to unfavorable baseline conditions."
"It's good that the ECB has started to buy Italian and Spanish government bonds as the sharp fluctuations we've witnessed in recent days could have destabilized the financial markets had the Central Bank not stepped in," he added.
"I hope that the intervention on behalf of the ECB will restore investor confidence and curb the panic. But this also depends of the governments and their willingness to live up to their end of the bargain and by that I'm referring to fiscal adjustment on behalf of all Euro zone members which will march the Euro zone towards fiscal and not only monetary consolidation."
Click here to read this report in Hebrew
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