July 6, 2012

PIMCO’s View on Economic Weakness & Corporate Profits

The global-equities expert says there are some buying opportunities

Corporate-profit growth, in the near term, can continue to “stay strong,” but investors and others should watch the global slowdown closely, said Neel Kashkari, head of global equities at PIMCO, on Friday.

“The big question mark is the slowdown in the global economy. All of the recent data suggest that the global economy is slowing and the U.S. economy is slowing,” Kashkari said on Bloomberg TV. “So we think there is going to be some pressure on corporate margins, but overall corporate margins can stay fairly strong in the near future.”

PIMCO, he says, is being very selective about the equity investments it makes. Still, Kashkari said, “We are not forecasting a global recession or a recession in the United States.”

The global economy has had about “three years and counting” of a deleveraging cycle, with several more years to come, he added.

In the current climate, making selective investments means look for “companies that do well when people are saving money,” such as Wal-Mart, Kashkari explained.

Also on Friday, the dollar extended its gains against other currencies. The euro traded at about $1.23, its lowest level since mid-2010.

Despite the weak jobs report on Friday, investors do not appear to be expecting a third round of quantitative easing by the U.S. Federal Reserve, which supports the U.S. dollar.

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