NEWPORT BEACH, Calif., May 28, 2002 (PRIMEZONE) -- Fund managers at PIMCO, one of the world's leading authorities on fixed income investments, believe the world economy has emerged from recession. PIMCO projects, however, that the recovery of the next several years will be modest when compared to the bounce-back from previous downturns. PIMCO also anticipates that inflation will drift up.
In such an environment, PIMCO managers believe their goal can best be achieved by limiting portfolio durations - interest rate sensibility - to benchmark risk or lower, while focusing on mortgages, top-tier emerging markets, and debt from corporations that offer both sound credit quality and transparent accounting practices.
The forecast, posted on the PIMCO web site (www.pimco.com) by Chief Investment Officer Bill Gross, is the consensus of several dozen top investment professionals, who gathered last week at the company's Newport Beach headquarters for the annual "Secular Economic Forum," a three-day discussion and debate on economic prospects for the next three-to-five years.
Participants at this year's Forum concluded that:
While global growth has resumed, there will be no return to the halcyon days of the late 1990s. Consumer spending will remain sturdy, as housing prices likely move higher, generating a positive wealth effect. In contrast, corporations are likely to be very tempered in spending, as they repair their balance sheets from excessive leverage in the face of a higher cost of capital. Meanwhile, Japan and Europe both face daunting headwinds of restructuring and reform.
Rising inflation will emerge, but only modestly. Increased defense spending, uncertainties over the prospects of war in the Middle East and support for increased government regulation in the wake of the Enron scandal/telecom busts/related bankruptcies all point to a new era of higher inflation. However, other anti-inflationary factors should hold the rate at the next cyclical peak to no more than 4 percent.
The dollar will decline by more than 10 percent, a result of the large and growing U.S. account deficit and global disillusionment about US corporate profitability. This is another factor pointing in the direction of a modest rise in inflation.
China will be an increasingly important factor in the world economy. During the next five years, the People's Republic could become the world's largest exporter. Its manufactured goods will remain cheap, as up to 300 million agricultural workers move from the farm to the factory - and that should help contain inflation, even while promoting global growth.
"Safe investing" has taken on a new meaning in the wake of Enron and other traumas in the financial world; PIMCO managers are concerned not only with making sure that the companies in which they're investing won't go bankrupt, but that they also have no SEC investigations or overnight ratings downgrades waiting in the wings. ("Hard to find," Gross notes in his web-site posting, though be believes on-site research should still be able to "ferret out the good guys.")
The Secular Economic Forum is a key cornerstone of PIMCO's investment success. PIMCO believes that the long-term trends and structural changes identified at the Forum exert the most powerful influence on the global economy and markets. Thus, the company shapes its investment process and structures client portfolios around the Forum's conclusions.
With more than $253 billion in fixed-income assets under management, PIMCO is one of the world's leading fixed-income fund-management companies. Founded in 1971 and based in Newport Beach, California, the company is majority owned by Munich-based Allianz Group, a leading global insurance company with about $1 trillion in assets and represented in 70 countries around the globe.
Except for the historical information and discussions contained herein, statements contained in this news release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the performance of financial markets, the investment performance of PIMCO's sponsored investment products and separately managed accounts, general economic conditions, future acquisitions, competitive conditions and government regulations, including changes in tax laws. Readers should carefully consider such factors. Further, such forward-looking statements speak only on the date at which such statements are made. PIMCO undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.