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.

"GOOD OPPORTUNITIES"

PIMCO, the fund management unit of German insurer Allianz (ALVG.DE), has focused on emerging market corporate bonds that trade at wider spreads than similarly rated companies in developed markets to boost returns.

"That's an area where we think there are very good opportunities because many of those companies are not well known, not well understood and therefore there's an excess risk premium," Mewbourne said.

Debt by companies such as Brazilian iron ore giant Vale (VALE5.SA), formerly known as CVRD; Mexican wireless phone company America Movil (AMXL.MX); and Russian natural gas producer Gazprom (GAZP.MM) are among those that offer good returns, he said.

PIMCO is also targeting local asset-backed securities in emerging markets as securitization expands, fueled by higher credit card use and real estate lending.

"It's early in terms of mortgage investments within emerging markets, but we think that over the next five years that will be something that will be a very good investment opportunity," Mewbourne said.

(Editing by Jonathan Oatis)