El-Erian Warns Against Buying Any Market Dip

ALLIANZ SE/ADR (OTC: ALIZY) Chief Economic Advisor Mohamed El-Erian wrote a Financial Times op-ed over the weekend and argued investors shouldn't buy any dip stemming from the coronavirus. On Monday, he was a guest on CNBC to further explain his thesis.

Coronavirus Is Different, El-Erian Says

El-Erian said in the interview that the market sentiment is so strong it can overcome a "mounting list of economic uncertainty."

Yet the coronavirus is a whole different story, as it can "paralyze" China and hold back the global economy, he said. In addition, a deadly virus can't be countered by any central bank policy.

Investors should resist any temptation to be buyers of any stock market dip, he said.

Coronavirus A 'Fundamental Shock'

The coronavirus is a unique situation that impacts supply chains and demand for goods, El-Erian said.

In his view, the virus represents a "fundamental shock" to economic growth, especially in China. Or, put differently, the coronavirus is "accelerating sudden stop dynamics."

Perhaps more concerning, the virus outbreak comes at a time when earnings "haven't been good" and European economic data is "weak," he said.

Any financial impact from the virus will first show up in upcoming economic Chinese data, El-Erian said. After that, he said it will be evident in emerging Asian economies and then in Europe.

Finally, El-Erian said it will show up in U.S. economic data but at a "much smaller scale."

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