(April 19, 2012) — Global portfolio managers must shift their investments toward emerging markets and away from “excess” developed-country assets to balance the global economy, asserts Pacific Investment Management Company’s (PIMCO) Ramin Toloui.
Finance played a key role in creating current imbalances, and it will be a catalyst and conduit for global rebalancing, which is a critical component of the financial system following the economic crisis, a newly released report by Toloui of PIMCO’s emerging markets portfolio management team asserts. While emerging markets account for about 36% of global output and 68% of global GDP growth, they only represent about 4% of the equity portfolios of US investors, Toloui says — a reflection that fund managers are not investing in emerging markets at a level that jibes with these economies’ contributions to global GDP.
“Heavily indebted industrial countries must consume less while high-potential, low-debt emerging market countries consume more,” Toloui writes. “The problem is despite the recognition that global economic rebalancing is critical for a more sustainable world economy, little actual progress has been made toward that goal.”
How does global economic rebalancing come about? His answer: global economic rebalancing alongside global portfolio rebalancing is critical to obtain financial market equilibrium. “Effective portfolio management requires an integrated approach that eschews the traditional dichotomy between developed and emerging markets,” he writes.
Looking ahead, he believes that “endowments, pension funds, retail investors, and sovereign investors will likely have to change their approaches to achieve portfolio return objectives in a world where developed countries are likely to grow at chronically slow rates, sovereign creditworthiness is increasingly questioned, and the yield compensation on industrialized government bonds has tended to be exceptionally low.”
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