Turmoil in Egypt has sent a message to rulers through the region that they need to get "ahead of the curve" or face similar destabilizing problems, Pimco's Mohamed El-Erian told CNBC.
While El-Erian, co-CEO of the world's largest bond fund manager, dismissed comparisons to the Iranian revolution of 1979, he said the unrest is nonetheless important for what it signifies regarding the mood on the Arab street.
"What happens is the rulers in the Middle East will understand that the combination of unemployment, high prices and the demonstration effect are such that they need to get ahead of the curve," he said. "It's the same for US foreign policy—understanding that you need to get ahead of the curve and that people matter."
Egypt exploded last week with violent protests against the governmentof President Hosni Mubarak.
At the center of the unrest were soaring food pricesthat triggered the large, impoverished population into protests similar to those that had happened in Tunisia, Yemen and elsewhere over the past several weeks.
In the US, the stock market sold off aggressively on Friday as concerns about trade disruptions worried investors.
But El-Erian said Egypt will remain an ally and a friendly trading partner, even as it charts a new direction.
"It is both possible and probable that the strong relationship with the US will remain. There is tremendous respect for the US there," he said. "Don't forget, Egypt relies on tourism, Egypt relies on the Suez Canal. I think you will see a continued ally for the US in the region, but it will be an ally that is moving forward and will look different than what it looked like before."
As for investors, El-Erian urged caution but said a market overreaction could create opportunities.
"We think of it as having to play both defense and offense," he said. "On the defense side, we have a concept at Pimco of safe spreads—make sure you understand where your real purchasing power is coming from as investors. On the offense side, we're starting to see some pretty indiscriminate selling. At some point Egyptian instruments in themselves will offer some value."