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El-Erian: Emerging markets not at risk of 1990s collapse

Emerging markets are in a better position than they were in the late 1990s, even with the recent plunge in places like India and Indonesia, Pimco CEO Mohamed El-Erian said on Friday.

Bearish sentiment has gripped emerging markets in recent weeks. Expectations that the U.S. central bank is set to start winding down its flow of easy money has sent investors scrambling out of riskier emerging markets in recent months.

El-Erian noted the Federal Reserve taper debate was harming emerging markets.

(Read more: Which emerging stocks have it worst?)

The prospect that the Fed could pull back on its massive bond-buying had created a "wedge" between asset markets and the real economy, he said, and triggered sharp volatility in far-flung markets like Indonesia and India.


Mohamed El-Erian speaks at the Global Overview session at the 2013 Milken Institute Global Conference.
Source: The Milken Institute
Mohamed El-Erian speaks at the Global Overview session at the 2013 Milken Institute Global Conference.

"We've been selling a lot to emerging markets," the Pimco chief said. "We have to care because they are important clients."

But El-Erian said most of those markets were not at risk of the kind of economic collapse that plagued Asia in the late 1990s.

"(They have) very strong reserves, so they have cushions; better policies; and flexible exchange rates. They have much more self insurance than they did in the '90s. Not for all but for most they do," he said.

(Read more: BRIC activity shrinking)

El-Erian said the two primary risks amid the emerging market rout are bad technicals overwhelming the fundamentals, and whether the flight of what he called "tactical money" would hurt dedicated investors in those markets.

But there are signs the selloff has been overdone, he added. Over the last three months the iShares MSCI Emerging Markets ETF shed more than 12 percent of its value, though it has rebounded a bit in recent days.

"The good news for investors is ... we've already started to see some pockets of opportunities," El-Erian said.

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