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El-Erian: Its Time To Rebalance Your Portfolio
Aspire, Thought Leaders | 20 April 2015
By: Vance Wong
Articles (74) Profile

Cash is king. That is a common adage that investors use when they believe that money (cash) is more valuable than other investments assets. This is certainly what economist Mohamed El-Erian thinks.

In a recent interview with Orange County Register, El-Erian revealed that large portions of his money are not sitting in stocks or assets, but cash.

Most Of El-Erian’s Money in Cash

After El-Erian’s abrupt resignation from Pacific Investment Management Co. (PIMCO), he pulled out his money and many people were curious about where would he invest next. It seems that the former PIMCO chief executive is currently sitting on a cash hoard.

The reason behind his assets allocation: the market is currently too bullish for the longest time, ballooning the prices of assets. El-Erian mentioned that he thinks “most asset prices have been pushed by central banks to very elevated levels.”

While he understands that inflation will have a direct impact on his decision, he thinks that the elevated asset price levels cannot be maintained for a very long time.

Possibly Nearing A Bubble

Although El-Erian did not explicitly express sentiments about a possible asset bubble forming, he did mention that the central banks “artificially lift asset prices by maintaining zero interest rates.”

This essentially causes the huge gap between asset prices and fundamentals present right now, and the gap might continue to widen. Considering this, El-Erian feels that it is safer to have his money in cash, and possibly wait for the right moment to enter.

Time To Revise Your Portfolio?

Although some investors might think that El-Erian is being a little too defensive with his current portfolio, the economist strongly believes that the current landscape offers too little for the amount of risk involved.

Straits Times Index Price Chart (5-year)

With the Strait Times Index currently trading at new five-year highs, it is quite possibly difficult for investors to feel that Singapore stocks are cheap now. To say that Singapore stocks are currently expensive might be stretching it a bit as well.

Currently, the STI is trading at a price-to-earnings (P/E) ratio of about 13.88x. Comparing this with its historical P/E of 16x seems to imply that the index still has some space to grow.

That being said, heeding El-Erian’s advice might not be that foolhardy. After all, it will take some time for retail investors to rebalance their portfolios. Increasing the liquidity of one’s portfolio can of course also provide investors with ammunition when opportunities come knocking.

With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

Please click here for more information about this author.

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