Pimco’s Spajic warns: “we’re running out of safe havens”
Pimco’s Luke Spajic has warned the global economy is “running out of safe havens” as market volatility pushes investors out of riskier assets.
Mr Spajic, head of pan European credit at the asset manager, said credit markets have “turned upside down” since the credit crunch in 2008.
“There are very few places where AAA is viable,” he said. “[As an investor] you can run but you can’t hide.”
The manager said the only remaining truly AAA nation was Norway, due to its massive oil reserves and low debt levels.
He pointed out bonds in the financials sector were “intimately tied” to the sovereigns they are most connected with, indicating if a country were to go bust, its banks would struggle significantly as well.
Mr Spajic added that it was “more difficult to discern” what exactly was in the price when it came to credit.
“Sovereigns are the new risky creditors, credit is behaving like equity, banks are the new high yield and governments are the new hedge funds,” he said.
“Sovereigns are driving the credit markets insane.”
Mr Spajic pointed out that Lehman’s, US automanufacturer General Motors (GM) and Greece were the three largest bankruptcies in history and they’ve “only happened recently”.
He warned that if Greece were cut loose, Italy and Spain “could not be saved” under the current structure because appropriate firewalls were not in place.
But the manager said he was positive growth in emerging economies, as the sector continued to grow its relevance in global credit markets, but he said he was “bearish” about growth in the overall economy, predicting growth rates of 1-2 per cent for the global economy over the next 12 months.