Time for risk taking has passed, says leading financial manager

by Trust Matsilele 0

Gross, who is also a co-founder of Pacific Investment Management (PIMCO), warns of negative returns in the year in his 2015 Investment Outlook.

The financial manager also said, during this volatile period, investors were best advised to consider high-quality assets with stable cash flows.

(READ MORE: Investors should reassess their risk appetite for 2015)

“Those would include Treasury and high-quality corporate bonds, as well as equities of lightly levered corporations with attractive dividends and diversified revenues both operationally and geographically,” said Gross.

“With moments of liquidity having already been experienced in recent months, 2015 may see a continuing round of musical chairs as riskier asset categories become less and less desirable.”

Gross added that debt supercycles in the process of reversal were not favourable events for future investment returns.

He also said that for the past few decades, the secular excess has been on the upside with rapid credit growth, lower interest rates and tighter risk spreads dominating the long-term trend.

“There have been dramatic reversals as with the Lehman Brothers collapse, the Asia/dot-com crisis around the turn of the century, and of course 1987’s one-day crash, but each reversal was met with a new and increasingly innovative monetary policy initiative on the part of the central banks that kept the bull market in asset prices alive,” said Gross.

“Consistently looser regulatory policies contributed immensely as well. The Bank Credit Analyst labels this history as the ‘debt supercycle’, which is as descriptive as it gets.”

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He further writes in his Investment Outlook that each downward spike in the economy and its related financial markets was met with additional credit expansion generated by lower interest rates, financial innovation and regulatory easing, or more recently, direct central bank purchasing of assets labelled, “Quantitative Easing.”

According to Gross, the power of additional and cheaper credit to add to economic growth and financial asset bull markets has been underappreciated by investors since 1981.