El-Erian Sees Two Major Risks in the Market

El-Erian sees two big risks in global markets this year.

The first is companies that are not hedged, particularly those that have a mismatch in revenues and liabilities. The number of unhedged companies in the United States pales in comparison to those in the emerging markets, he said.

The second risk is the uncertainty over central banks’ ability to repress volatility.

“They’re battling. Look at the Russian central bank today. Look at the Swiss central bank today. They’re having enormous difficulty dealing with foreign exchange volatility,” he said.

Investors will have their resilience tested this year in the face of greater volatility as central bankers lose their ability to ease volatility, he said.

The condition of the markets will be a geopolitical call as much as it is an economic and corporate call. Investors should keep an eye on Russia, which El-Erian said is a major source of concern for Europe.

“If Europe goes into recession, the U.S. is going to be impacted,” he said.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza