Pacific Investment Management Co. Chief Executive Mohamed El-Erian, a skeptic of Wall Street’s rebound this year, called troubles in Dubai an “overdue correction” for stocks and other risk investments Friday.“While many have acknowledged in the last few weeks the growing wedge between market valuations and economic and corporate realities, few have been willing to take their equity exposure down,” El-Erian told Reuters.
Wall Street’s major indexes were down about 2% near the close of New York trading on Friday on fears of a possible default at Dubai World, a state-owned conglomerate with some $60 billion in debt.
Global markets fell Thursday on word that Dubai World is looking to delay repayment of some debt.
Pimco, the largest bond fund manager, has cut back on riskier holdings and upped investments in Treasury bonds and “other high quality names,” El-Erian said.
He predicted a “contagion” of commercial real estate related defaults in other countries.
In August, El-Erian called Wall Street’s 2009 run-up overdone.
“The fundamentals are such that valuations are ahead of fundamentals,” El-Erian said.
