Bill Gross On Emerging Markets: Global Imbalances, The Brazilian Real And His Personal Favorite

On Friday, Bill Gross of Janus Capital appeared on Bloomberg and shared his thoughts on several issues, including emerging markets, with Tom Keene and Michael McKee.

Get Started

Earn 7.2% — No Matter What the Fed Does

Markets expect rate cuts — but your earnings don’t have to suffer. Lock in 7.2% until 2028 from ten individual bonds.

Get Started

The Imbalances Of The Global Economy

Talking about overnight VAR (value at risk) in Brazil, China and the Hong Kong PMI, the investor stated, “I think any central banker, and certainly those at the IMF and other global agencies are well aware that there are significant imbalances in the global economy.

“And that speaks to not only trade balances, but it speaks to financial markets. It speaks to currencies,” he continued. “The Brazilian real that you just mentioned is still on a real basis highly overvalued and one would suggest has further to go.”

Gross went on, “These conditions exist in Asia in terms of their currency levels. Investors are being concerned by the draining of reserves of these countries, China included, tend to support their currencies and how long, and that could continue.”

In fact, he added, there are imbalances everywhere, and they are “an afterthought or an aftermath of the Great Recession.”

All About Brazil

When asked if he was out of Brazil, short Brazil, or if he saw an opportunity there, Gross said he is currently not in Brazil, but thinks it’s certainly “enticing.” People can invest in the Brazilian Real and make 14.5 percent “overnight or over a week or over a month.”

Related Link: Brazilian Real Starts To Recuperate As Rate Hike Halt Is Confirmed

“The question is, on an annualized basis, does the currency depreciate by 14.5 percent? So far, it’s been doing that, so pick your poison,” he concluded.

Gross’ Favorite

Finally, Gross mentioned his “favorite emerging market country, the strongest one,” in his opinion: Mexico. “And I don’t even think it’s an emerging market country any more,” he added.

“It has got half the debt of the United States. It still has 2 percent growth. Inflation is under 3 percent. It has got the cast of emerging markets. And so when risk off appears on your screens, then Mexico won’t do well.”

However, the portfolio managed believes there are certain emerging market countries that can fare well. “And, by the way, just to point out, Mexico’s forward yield-curve going forward is, in the next two years, perhaps 300 basis points higher in terms of the future increase than in the United States. So I think it’s really over-extended and ultimately is of value,” he concluded.