US, UK & rest of world growth rift to widen in H2: Pimco

Excerpts from Your World at 10 on CNBC-TV18 Watch the full show » RELATED NEWS See significant inflows in high beta EMs: Macquarie Sec ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets

Global markets have been stuck in a very narrow range for the last few weeks. Have they run out of steam? Or is uncertainty about issues like Europe, China's overheating, and the Fed's exit in the US too much for the market to carry right now? CNBC's Joe Kernen spoke to Pimco's Mohamed El-Erian on the markets adjusting to the "new normal" - that's the phrase that Mohamed El-Erian coined. "In the second half of this year, we expect the difference between the growth in the rest of the world and the growth in the US and the UK to get larger."

Here is a verbatim transcript of the interview. Also watch the accompanying video.

Q: In Pimco's view, what should they (investors) be buying and I am talking about domestic or global, whether its stocks or bonds. What to buy and what to avoid in what you say 'new normal'?

A: What is critical is the mindset. The mindset is to recognise things that we know and there are lots of known or unknowns. The most critical element right now for any investor is to bet on what is known and retain optionality on the known/unknowns because they are going to be clearer in the period ahead. So, that is absolutely critical and the mindset in critical.

When I listen to lot of your guests and sometimes even you, I get the image of someone who wakes up in McDonald's in Europe, they look around, there things that are familiar. But what they have to realise is things are familiar, that's the cyclical side, but if they step outside and look around, it is not going to be the same. There are things that we do not know, the language is slightly different, the way people drive is different. There are things that are ongoing today and they speak to the structural issues; they speak to issues of public policy, of public finance, of regulation, of what is happening in the rest of the world or about China. So you just to recognise, this is a slow moving change and do not get fooled by just what you know.