PIMCO bets on emerging currencies, corporate debt

By Elzio Barreto

SAO PAULO (Reuters) - Pacific Investment Management Co, the world's largest bond fund manager, expects emerging market currencies and corporate bonds to gain next year, an executive at the company said.

Investments in local debt instruments in Brazil, Mexico and South Africa that performed well in 2007 will keep posting gains next year, Curtis Mewbourne, PIMCO's co-head of emerging markets, said in an interview.

"We think the dollar will continue to weaken and many of the emerging market currencies will benefit from this," said Mewbourne, who helps manage about $60 billion in emerging market securities at Pimco.

"We do think that the local bond markets still offer some attractive returns."

PIMCO's bet on emerging market currencies "was one of the things we got right" in 2007, he said. Other holdings that performed well this year included local interest rate investments in Brazil and Mexico.

In Mexico, the company has bought the peso on the spot market, and in Brazil PIMCO gets its currency exposure from locally traded bonds or through the derivatives market, buying non-deliverable forwards, he said.

PIMCO has shifted investments away from European government bonds and increased its exposure to Singapore, Malaysia and the Philippines, betting gains in China's yuan will boost other Asian currencies. The firm has bought local government bonds, currencies and, in the case of the Philippines, external debt.

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