Mohamed El-Erian to investors: Prepare for worrying volatility

Dubai: Hisham Mukhanh
Economist Mohamed El-Erian said that investors should prepare for a wave of worrying fluctuations due to signs of imbalance in US Treasury bonds and financial market turmoil, suggesting the return of the S&P index to its lowest levels in June.
In an interview with CNBC, El-Erian pointed out that there is value in some attractive individual stock names, but the bleak economic background of the macro economy should not be ignored.
The S&P index has already started a downtrend since the Federal Reserve raised interest rates by 75 basis points last Wednesday, when stocks recorded their biggest daily drop since the pandemic.
And the chief economic advisor at Allianz warned of a rapid loss of confidence in US policy makers, and that those policies had turned from a “disincentive” to “amplifiers” to volatility.
He pointed to the $50 billion that flowed into the money market last week, which means investors exited stocks, bonds, high-quality investment funds, and other risky assets.
El-Erian explained that the imbalance in US bonds, which witnessed a recent decrease in liquidity, is very worrying, because the Treasury market cannot be isolated from other markets due to its wide influence on them. “These markets can create violent turmoil, not just volatility,” he said. Noting that the turmoil in Treasuries is structural and has been largely exposed to quantitative easing by the Federal Reserve, whose balance sheet has ballooned to $8.9 trillion with aggressive bond purchases to protect the economy during the pandemic.
El-Erian has been a vocal critic of the Fed’s expansionary policies, and its slow response to rising inflation has caused interest rates to rise at such a pace.