Investors Should Limit Exposure to US Equities: Gross
Middle-aged investors looking to retire in about 20 years should position their portfolios to have a 25 to 30 percent stake in equities outside of the United States, Bill Gross, co-chief investment officer at PIMCO told CNBC Monday.
"Stocks or equity investments are better made in strong growth economies—that's not the US," Gross said. "You go where the growth is, and today, that would be in developing markets such as Brazil or Asia."
The US stock market is likely the most overvalued global market, Gross said, pointing out that it has a higher P/E ratio than the United Kingdom or Brazilian markets, but a lower yield. Ten-year bonds in those two countries also far outyield those in the United States, he said.
"The US is attracting foreign investments from China and from Japan for alternative reasons," he said. "In both of those cases, on the bond side and the stock side, they seem to be overpriced."
Although no other currency is an obvious choice for what could become the new reserve, currencies in a number of emerging markets and other developed countries are still preferable to a depreciating dollar, Gross said.
"Other countries must look to not only the yield on US investments, but a possibility of a depreciating currency in terms of factoring in the total return on their investment," said Gross.
James Paulson, chief investment strategist at Wells Capital Management, agreed that the emerging markets will continue to be a better investment than the US because they have greater resource growth. Still, the US and other developed markets will remain strong because of their political stability, said Paulson.
"I believe that emerging world currencies are going to begin a process of slow appreciation that's going to last maybe over the better part of the next decade," Paulson said. "It doesn't necessarily mean that the developed economies will be bad investments — they may not perform as well as the emerging world over the next decade, but that doesn't mean they'll perform poorly."