Mark Kiesel, global head of corporate bond portfolio management at Pimco, appeared on Bloomberg to discuss the outlook for emerging markets (NYSE:EEM) and corporate debt investment strategy. Kiesel said he expects “emerging market debt to grow at 5.5% to 8.5% versus the 1% to 3.5% growth” in developed countries.

Kiesel on why he is long in emerging markets and short in developed markets right now:

“Emerging markets are going to have a lot of near-term volatility with what’s happening with Oil (NYSE:USO) in the Middle East, but longer term they are growing at much faster rates. For example, emerging markets are going to grow 5.5 to 8.5% overall, whereas the developed countries are growing at 1 to 3.5%. They’re also building wealth faster and growing incomes, so longer term it’s definitely a place you want to be.”

On Brazil and Russia:

“Brazil (NYSE:EWZ) because of agriculture (NYSE:DBA) and metals and mining (NYSE:XLB). These are some of the lowest cost mining producers in the world. Russia because they basically control 18% of the stock of natural gas and are very large oil producers as well. These countries, Brazil and Russia, are going to benefit from inflation and also the fact that there is this industrialization going on in the emerging markets, which really is secular. Brazil and Russia are going to feed that growth engine for other emerging markets.”

On companies he would buy into that would present the most value:

“In Brazil, it would be companies like CSN and Vale (NYSE:VALE), which are some of the lower cost metals and mining companies in the world. Also Gerdau (NYSE:GGB), a steel company. In Russia, it’s really Gazprom. Gazprom controls 18% of the gas in the world. They are also the exclusive export monopoly within Russia for gas, so they control all of the pipelines. Tremendous pricing power. With the Japan (NYSE:EWJ) situation, you’re seeing prices increase, you’re seeing volumes increase. This company is very underlevered, the valuations are also very attractive. So it is hitting on all fronts. It’s got a long-term positive outlook, near-term good outlook and good valuations.”

“What’s happening, and this is really key with all companies around the world, many companies can pass through higher input costs, other companies can’t. The energy (NYSE:XLE), the oil field service (NYSE:OIH), metals companies–those are going to be your leaders in terms of earnings growth margins going forward.”

On if he would buy in Japan:

“We would buy Japan (NYSE:EWJ). I think it depends a lot on valuations. But you have seen a big pullback in the economy. You’re going to see growth probably go negative this quarter, next quarter. But you will see a big rebuild. They’re importing a million barrels less now, but over time they are going to be building back the economy so there are good selective investments there. We have been buying Toyota Motor (NYSE:TM) credit recently, after the earthquake. So there are selective opportunities in Japan.”

On if there’s a way to buy Japan without buying directly into Japan:

“I think the proxy is really a result of this crisis, not only in Japan, but in the Middle East. There’s a lot of uncertainty in the world. What this means is that monetary policy in Japan is going to be very easy. It could even cause other central banks which were biased to hike to stay easier longer. The Fed’s going to be on hold for, in our opinion, a year. That’s inflationary so what does it benefit? It benefits resource companies–energy, metals, mining–companies that have the pricing power. We think monetary policy will stay relatively loose in the developed countries.”

On what he is avoiding now:

“I think the biggest thing you want to avoid is the companies that will get hit by margin pressure. So the question right now is can companies pass through these higher import costs. You’re seeing in the airline industry, airline companies are raising prices for business travelers. Oil is a shock to consumers, which means consumer spending is going to come down. So I think you want to be cautious on the cyclicals, particularly the cyclicals in the US. Cyclicals in emerging markets are doing much better because of unemployment rates–like Brazil and Russia, etc. It’s a very active management, but you want to be cautious on auto companies in the US–airlines, retailers (NYSE:XRT)–because you are seeing a consumer shock with higher oil prices.”

“We have been underweight because we are cautious on the recovery in the U.S. We are putting more of our money globally in emerging markets. You’d want to be more cautious on airlines in particular–40% of their costs are fuel, so airlines are definitely a sector you want to be cautious on. You also want to be cautious on retailers. Retailers (NYSE:XRT) are facing higher wages from China. They are also facing higher commodity costs like cotton, so retailers is a sector where we are very underweight.”

Kiesel on investing in China:

“There will be a lot more investments coming in China (NYSE:FXI) over time. Right now, the major energy producers are really Russia and Brazil. The big change in China has been that they’ve gone from exporting deflation to inflation. They are exporting inflation because they are not letting their currency appreciate. That’s going to be a big issue in terms of China’s impact on the rest of the world–more inflationary. In terms of actual investments in China (NYSE:FXI) right now it’s relatively limited.”

Get Your FREE Special Report: 4 Things You Must Know About the US Economy Now!