‘Expect much more volatility in Europe', says PIMCO’s El-Erian

Investors should prepare for 'much more volatility', the chief of the world's largest bond fund manager has warned after a deadlock in the Italian elections renewed concerns about the stability of the eurozone.

'Expect much more volatility. You can expect to see much more in terms of what we've seen in Italy over the past couple of days,' said bond fund manager and market commentator Mohamed El-Erian, chief executive of PIMCO and manager of the mixed asset PIMCO GIS Global Advantage Real Return fund.

'The important lesson from Italy is that the wave of popular rejection that is going through Europe is in evidence,' he added in comments at the Institutional Money conference in Frankfurt.

Equity markets sold off sharply on Tuesday following the news which saw investors flock into perceived safe haven assets such as German government bonds.

El-Erian cited political risk as the biggest factor facing investors and said his team at PIMCO were currently reducing risk across their portfolios.

'We are gradually reducing credit and equity risk. We are also buying real assets because we expect inflation to hit in at least five years,' said El-Erian.

The investor added that he expects the US Federal Reserve to continue on a path of loose monetary policy, countering market concerns that the market-supporting stimulus could end sooner than previously expected.