(Bloomberg) -- Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the global economic expansion will remain sluggish, with assets such as stocks at risk and subject to more volatility.
“What we see going forward is a global marketplace and a global economy where growth is slow,” Gross said during an interview on Bloomberg Television’s “Market Makers” with Erik Schatzker and Stephanie Ruhle. This will persist “for a long, long time. Certainly in the U.S. we saw some bad numbers over the past few days and we wonder whether or not that 3 percent growth rate in 2014 is for real.”
Global shares have been falling this year as signs of slowing recoveries in the U.S. and China come at the same time the Federal Reserve is reducing bond purchases and emerging- market currencies slump. Bonds beat stocks last month for the first time since August as fixed-income securities worldwide enjoyed their best start to a year since 2008.
American factory output expanded in January at the weakest pace in eight months and China’s official Purchasing Managers’ Index decreased to a six-month low as production and orders slowed. The Institute for Supply Management’s factory index decreased to 51.3 from 56.5 in the prior month, the Tempe, Arizona-based group’s report showed yesterday. Readings above 50 indicate expansion.
The MSCI Emerging Markets Index fell yesterday to a five- month low. Central-bank rate increases in Turkey, India and South Africa last week failed to contain January’s 3 percent selloff in emerging-market currencies.
“We have highly levered global financial positions with hedged positions that are moving back and forth based on emerging market countries -- based on their growth rates or their expected growth rates,” Gross said in the interview. “To the extent that that growth rates comes down, then risk assets become more at risk and more volatile.”
Pimco popularized the term “new normal” in 2009, which describes an era of lower returns, heightened government regulation, diminishing U.S. clout in the world economy and a bigger role for developing nations.
Pimco has been buying U.S. Treasuries maturing in four- to five-years this week, sticking the strategy outlined last year amid expectations the Fed will keep short-term rates through the year even as it reduces asset purchases, Gross said.
“Emerging markets are getting cheaper,” Gross said. “The problem is emerging markets have problems. Take examples such as Brazil and Turkey. These are countries with widening current account deficits. These are countries which by necessity in order to stabilize their currency have to raise interest rates and put their economies at risk in terms of slower growth.”
The performance of the $237 billion Total Return Fund over the past three years puts it ahead of 67 percent of similarly managed funds, gaining 4.7 percent over the period, according to data compiled by Bloomberg. It has returned 1.64 percent this year, placing it the 55 percentile. The proportion of Treasuries and government-related debt in the fund was 45 percent in December, compared with 37 percent in the previous month, based on latest data from the company’s website. Gross held emerging-market bonds at 6 percent in the fund in December and raised non-U.S. developed debt to 6 percent, from 4 percent in November, the data show.
Uncertainty about the pace of China’s growth this year is adding to investors’ unease and demand for only the safest of assets, Gross said.
“China, it is 6, 7 or 5 percent growth,” Gross said. “I call China the mystery meat of emerging-market countries.”
China’s economy grew 7.7 percent in 2013, the same rate as in 2012. Growth is forecast to be 7.4 percent this year, the slowest pace since 1990, based on the median estimate in a Bloomberg News survey.
Pimco, a unit of the Munich-based insurer Allianz SE, managed over $1.9 trillion in assets.