| Pimco's Mohamed El-Erian is the world's biggest buyer of emerging market debt |
MOHAMED EL-ERIAN, the chief emerging-market bond investor at Pimco in California, likes to tell the story of a trip to Asia at the beginning of 2002. A large investor there was dipping its toes into El-Erian's market. Brazil was doing what it tries to do every January - issuing a 10-year bond. The Asian investor put in an order, received an allocation, and watched as the new bond immediately fell off a cliff, dropping three points in one day.
The fund manager reported this development red-facedly to his superior, the shell-shocked company sold the bond taking a large hit, and an important investor was lost to the asset class for the foreseeable future.
El-Erian was furious: this kind of deal gave emerging-market debt a bad name and kept large numbers of investors on the sidelines. The asset class has delivered stunning returns in recent years, but bond investors don't like to invest in Wild West markets. If emerging-market debt was ever to mature, deals like this simply could not keep on coming to market.