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Keep your powder dry as market downturn is coming, Pimco asset manager says

Global recession might not be on the cards, but investors are starting to worry that central banks are running out of ammunition, Geraldine Sundstrom, an asset allocation portfolio manager at Pimco, told CNBC Wednesday.

"Keeping your powder dry is one of the key recommendations we have … to take advantage of the market downturn," she said, adding that she was unable to give an exact date on when a downtick might come.

Risks are rising on the horizon, according to her company's outlook, with one of the main concerns being whether central banks are running towards the end of the road in terms of policy. "This is the main worry in most people's mind and (is affecting) the way we are building our portfolio," she said.

"Our asset allocation is cautious and not really risk-averse. We are really trying to steer away from negative yielding assets and really building the portfolio with core quality income at the heart of it," Sundstrom later said, adding that banks in the U.S. are good investments.

Sundstrom said she would wait until the downturn before "operating gradually" and buying up assets that had fallen in price. However, she explained that there were currently no "excesses in the system" and said there was no "overinvestment" in any particular asset which would be a typical factor to bring about a recession.


Woman looks at chart showing drop in sterling against U.S. dollar in London on June 24, 2016.
Daniel Sorabji | AFP | Getty Images
Woman looks at chart showing drop in sterling against U.S. dollar in London on June 24, 2016.

Central banks across the globe have been resorting to various options such as ultra-low interest rates and printing more money in order to stimulate growth in the economy. But many analysts have warned that the pace of economic recovery across the globe remains mediocre and central banks are running out of policy options.

A number of analysts have pointed to the need for more fiscal reforms to balance the economy. Sundstrom told CNBC this is a possibility and while there are hopes of this happening across the globe, things are not certain yet.

"We will see what the U.S. elections will bring, how Congress will be shaped and if this (fiscal reforms) will really be possible coming from the U.S. In Europe, you have the typical stumbling block – the Maastricht criteria. In Japan we are waiting to see if anything will occur maybe by the end of this month," she said.

After seven years of an equity bull run, market participants have been carefully monitoring any potential for a recession of a sharp drop in stock markets. Peter Oppenheimer, chief global equities strategist at Goldman Sachs, told CNBC earlier in August that a 10 percent drop in developed market equities could happen in the coming months.

Others like Credit Suisse are fairly bullish on stocks in the short term. At the start of August, the Swiss bank raised its year-end targets to 2,250 points and 3,100 points for the S&P 500 and Euro Stoxx 50 from 2,100 points and 2,950 points, respectively.


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