Famed economist Mohamed El-Erian says it's still too early to buy stocks — but thinks those with the itch should spread out purchases over many months

The famed economist warned equities have more room to fall, as markets haven't yet priced in firms' future liquidity stresses and heightened risk of default.
Averaging into the market is "not very sophisticated, but no one can tell you for sure how these dynamics are going to evolve," he said.
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The newly bearish stock market still has room to fall, but those craving to deploy capital should do so over a long period of time, Mohamed El-Erian, chief economic adviser at Allianz, told CNBC .

The coronavirus risks plaguing markets are still largely unknown, leaving stock prices in an odd limbo as investors try to predict a market bottom. The famed economist said he'd stay away from reentering equities until more is known about the pandemic's trajectory. For those with a need to buy stocks, a simple average-in strategy spread over many months gives investors the best shot at capturing good value.

"I know it's not very sophisticated, but no one can tell you for sure how these dynamics are going to evolve. We simply have not seen this before," El-Erian said Wednesday.

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The economists' comments arrive one day after major US stock indices notched their worst quarterly performance since 2008. Equities fell further in Wednesday's session as investors digested President Trump's warning of a "very, very painful two weeks" of the coronavirus outbreak.

Firms that used debt offerings to shore up cash will struggle to repay loans as their earnings power diminishes post-crisis, El-Erian said.

Other companies aren't able to secure loans, and markets haven't yet priced in the likelihood of their defaults, he added.

"For them, a liquidity problem will become a solvency issue, which means a reversible shock will become a permanent capital-impairment shock," he said, adding that the market reaction will pull valuations below their current level.

El-Erian's cautioningisn't the first time he advised investors to avoid buying low. The economist told CNBC on February 25 that the coronavirus' economic fallout " is different " from slumps of the past, and investors should consider "a whole host of uncertainties" before deploying capital. His comments came one day after stocks began their downward trend, sliding on news of virus outbreaks in Iran, South Korea, and Italy.

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