Gross: BRIC-Like Economies 'Obvious' Investment Choices
Gross: BRIC-Like Economies 'Obvious' Investment Choices
Last Update: 5/22/2008 11:13:37 AM
DOW JONES NEWSWIRES
The latest investment outlook of Pimco's Bill Gross showed that with rising
global inflation, there is a need for new global investment solutions and called
for a move toward commodity-based assets and foreign equities.
The bond king also advised in a note to stay clear of Treasury
Inflation-Protected Securities - so-called TIPS - whose returns Gross said are at
risk from the "delusion of an artificially low inflation number."
Inflation-adjusted yields on TIPS have plummeted in recent months because
investors have fled to the safety of Treasurys, which influence TIPS yields, and
because of a sharp drop in interest rates.
In noting that global inflation has run at 7% the past year, including 4% in the
U.S., Gross made a number of suggestions on how to play inflation.
Known for having an anti-Treasury stance, Gross advised investors against
favoring Treasury bonds because of their negative - or in his words, "unreal" -
yields and the risk of inflation being underreported and potentially eating into
U.S. TIPS' returns.
Instead, Gross urged investors to focus on commodity-based assets and foreign
equities whose price/earnings ratios are "better grounded" with local consumer
price indexes and nominal bond yield comparisons. Such assets, he said, should be
in currencies that show "authentic real growth and inflation rates, that while
high, at least are credible."
Commodities are considered a longstanding inflation buffer, with prices for gold
and most other commodities, from crude oil to corn, having climbed sharply over
the last year. The question is whether they will keep rising but odds are, if
inflation moves higher, they will too.
Lately, it has become easier for individuals to invest in commodities, thanks to
a growing number of mutual funds, exchange-traded funds and debt investments
called exchange-traded notes. Investors can get exposure to futures ranging from
nickel to grains to livestock through ETFs and ETNs. But financial planners often
advise caution in buying single commodities, as they can be very volatile.
Gross added developing economies like those in Brazil, Russia, India and China
are "obvious choices for investment dollars." On April 30, Standard & Poor's
upgraded Brazil's debt rating to "investment-grade" - making it the last of the
BRIC nations to have its creditworthiness win that coveted seal of approval.
-By Donna Kardos, Dow Jones Newswires; 201-938-5963; donna.kardos@dowjones.com
(END) Dow Jones Newswires
May 22, 2008 11:13 ET (15:13 GMT) |
