Going where the growth is high and the debt is low; buying a ton of won
Pacific Investment Management Co., which runs the world's biggest mutual fund, said it's betting the euro will fall because its current strength doesn't adequately reflect the risk that the union may disintegrate.
The fund is buying currencies of countries that have strong growth, low levels of debt, and where central banks are tightening monetary policy, such as Australia, Singapore, South Korea and Sweden, Thomas Kressin, head of European foreign exchange at Pimco in Munich, said in an interview yesterday.
“The euro is overvalued,” he said in London. “Investors should, and will eventually, demand higher premiums to compensate for political and economic risks which are structurally embedded in the institutional setup of the euro area. That's why we expect the trade-weighted euro exchange rate to depreciate from here.”
Bloomberg Correlation-Weighted Indexes showed the euro has risen 3.9 percent in the past three months, making it the best performer after the Swiss franc among the 10 currencies tracked by the measure. The 17-nation currency has gained even as the currency bloc grapples with a sovereign debt crisis that forced Greece, Ireland and Portugal to seek bailouts from the European Union and the International Monetary Fund.
Kressin said Pimco has been bearish on the dollar, the yen and the euro in the past few years and it preferred currencies from emerging economies, especially in Asia. South Korea will grow 4.5 percent this year while the U.S. economy expands 2.9 percent and the euro region 1.7 percent, according to median economist estimates compiled by Bloomberg News.
“Given growth and rising inflationary pressures we've seen in the emerging markets, currencies have become an additional tool for policy makers there to reduce the pressure,” Kressin said. “In the developed markets, the same criteria applies. That's why we find the Australian dollar, the Norwegian krona and the Swedish krone attractive.”
--Bloomberg News--