CNBC Stock Blog

Flat Yield Curves an "Early Warning" for Emerging Markets: Advisor

Flat bond yield curves in Brazil and India are an "early warning radar" for investors to tread carefully in emerging markets, Richard Bernstein of Richard Bernstein Advisors and portfolio manager at Eaton Vance, told CNBC Thursday.

Bernstein told CNBC that the flat yield curvesin Brazil and India, have inverted, which "normally is the early warning radar for equity investors to be very, very cautious."

Robert Albertson O'Neill, chief strategist of Sandler O'Neill and Partners, said although emerging market economies are slowing, many companies in the S&P 500 leverage by buying overseas. O'Neill added that many companies "are driven primarily by global demand...they are still buying."

"What we are trying to do is actually shield ourselves from the emerging markets," Bernstein said, pointing to the uncertainty surrounding the European debt crisis and whether U.S. lawmakers will come to an agreement in time to raise the federal debt ceiling and prevent default.

Bernstein said he does not believe the U.S. economy will grow faster than emerging-market economies, but that "it is likely in the next 12 to 18 months for the U.S. economy to grow more...than people think right now."

"If investors think growth expectations in the U.S. will improve, it would be best to look at (municipal bonds)," Bernstein added. "We're trying to do it more through stocks and lower quality bonds, or even munis," he said.

He told CNBC that expectations move the stock markets, "not the absolutes of GDP."

Meanwhile, O'Neill said he is looking into American banking sector, which he believes is being ignored. "I don't think anything else can happen to it, and if you look at the degree of loss absorption that has occurred at the capital levels, which are already doubled," he said.

WATCH: In a recent interview, Richard Bernstein said he is worried China is about to pop.


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Disclosure information was not available for Richard Bernstein and Robert Albertson O'Neill, or their respective companies.