“If I invested over the next 12 months, I would reduce my exposure to stocks at this point. I would make some money off the table,” said Mohamed A. El-Erian, chief financial officer at Allianz Group and a bond market veteran. on Bloomberg’s The Open show on Tuesday. “The market offers a great opportunity to exit,” he added.
“I do not think the market has taken into account what is going to happen in the economy,” El-Erian said.
He also said that it is not surprising that the shares have proved resilient and even strengthened after the Fed, last week, raised the interest rate on short-term lending, for the first time since 2018.
“If someone is involved in asset allocation and someone is proposing to reduce their exposure to equities, the question will be, ‘And where should I go?'” Said M. El-Erian. “Towards cash? Not even. Inflation is around 7.9% and may reach 10%. That would mean a guaranteed negative real return. In bonds? “No, the bonds are in an adjustment phase. So one ends up not reducing one’s exposure to stocks, but actually looking to increase it.”
However, M. El-Erian warned, the relative value of the shares may prove vulnerable. “My main analytical position, if those who are watching us are interested, is that we will soon see global stagnation, lower growth, higher inflation. The stock market has not priced it yet, because it is still thinking in terms of data relativization.”
El-Erian said in July that inflation, which at the time was hovering around 5.4% year-on-year, would not be as transient as the US Federal Reserve had predicted.
Source: Capital
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