Bloomberg News

Kashkari Sees ‘Downside Risk’ in Stocks, Likes Honda: Tom Keene

January 12, 2012

Jan. 12 (Bloomberg) -- Concerns over Europe’s sovereign debt crisis will continue to weigh on global stocks and drive up volatility, according to Pacific Investment Management Co.’s Neel Kashkari.

Pimco, which manages about $1.3 trillion, is avoiding European banks, according to Kashkari, its head of global equities. The firm favors multinational companies that sell in fast-growing countries, such as Japanese automaker Honda Motor Co. and AIA Group Ltd., a Hong Kong-based insurer, he said.

“There is a lot more downside risk here than there is for upside surprises,” Kashkari said today in a radio interview with Tom Keene and Ken Prewitt on “Bloomberg Surveillance.” “We have not yet seen an actual resolution to the euro zone. We’ve seen bridges to nowhere so far.”

The MSCI World Index, a benchmark gauge for equities in developed countries, fell 7.6 percent in 2011, the first annual loss in three years, as concerns grew that Europe’s debt crisis will trigger a global economic recession. The Standard & Poor’s 500 Index was virtually unchanged, while the MSCI Emerging Market index slumped 20 percent. The MSCI World trades at 13.1 times the past 12 months’ earnings, compared with its average since 1995 of 21.9, according to data compiled by Bloomberg.

Volatility reached record highs in August as Europe was forced to bail out Greece. Daily share swings in the S&P 500 averaged 2.2 percent that month, the most for any August since 1932, according to data compiled by Bloomberg.

Kashkari, who joined Newport Beach, California-based Pimco in December 2009, said investors should be prepared for high volatility in the short term and hold stocks for a longer time horizon. Pimco tends to hold a stock for three to five years, he said.

“Equities are just far too volatile to play a timing game right now,” he said. “If someone is saving to retire in 10 years, we think equities can offer an attractive total return, given an attractive valuation today, still good earnings growth and good dividend yield. The fundamentals are there, but in the short term, there is going to be massive volatility.”

--Editors: Joanna Ossinger, Chris Nagi

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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