Vindicated Mobius says emerging markets still best bet

Legendary investor called his shot in 2009 -- and was right; sees more gains ahead for BRICs, frontier markets

Apr 29, 2011 @ 7:10 am

The global equities bull market will weather any halt in bond purchases by the Federal Reserve amid rising U.S. consumption and investment in emerging markets, according to Templeton Asset Management's Mark Mobius.

U.S. stocks rose, sending benchmark indexes to almost three-year highs, after the central bank yesterday renewed its pledge to keep interest rates near zero to stimulate the economy. The Federal Open Market Committee agreed to finish $600 billion of Treasury purchases in June. Another round of buying isn't needed to sustain the rally and there won't be an economic slump in the second half, Mobius said in a phone interview from Bucharest yesterday before the Fed statement.

“We are in a bull market and it will continue,” said Mobius, 74, who oversees more than $50 billion as the Singapore- based executive chairman of Templeton's emerging markets group. “There will be corrections along the way but these will be very temporary. The consumer in Europe and America is back. They're not spending like crazy but they are spending.”

InterContinentalExchange's Dollar Index sank 0.5 percent to the lowest since 2008 as of 2:05 p.m. in Tokyo. The MSCI Asia Pacific Index jumped 1.1 percent to an eight-week high after the central bank statement. Silver, copper and oil surged and gold rose to a record.

“Things are humming along at the moment,” Mobius said. The MSCI Emerging Markets Index has more than doubled since Mobius said in a Bloomberg Television interview on March 23, 2009, that a “bull-market” rally had begun and that there were bargains in every developing-nation market following the slump triggered by the global financial crisis.

Fed Chairman Ben S. Bernanke yesterday said the central bank would initially hold its balance sheet steady after completing the current program of bond purchases, the second phase of so-called quantitative easing since the global financial crisis.

Dollar, QE3

More bond purchases by the U.S. central bank would cause instability for the U.S. dollar that would “weigh” on markets, causing “a great deal of uncertainty globally,” Mobius said.

Confidence among U.S. consumers increased more than forecast in April, signaling the improving labor market is helping Americans weather rising fuel costs, an index compiled by the New York-based Conference Board showed April 26. Six straight months of job growth are helping sustain consumer purchases, which account for about 70 percent of the economy.

Balance Sheets

“A lot” of the funds from previous Fed bond purchases are still held by banks that will, with repaired balance sheets, increase lending amid the economic recovery, Mobius said. New drivers of growth also are emerging from Africa to Russia, with Eastern Europe likely to add impetus within one to two years, Mobius said.

“If you consider Russia alone and the African continent, these areas have hardly been exploited for mineral wealth,” he said. “There's an incredible amount of infrastructure that has to be put in for these countries not only to get at the mines but also to serve the growing population. It's endless.”

Standard & Poor's April 18 decision to cut its outlook for the U.S.'s top AAA credit rating to “negative” from “stable” and risks of fiscal crises in some developed economies has changed investor behavior, benefitting emerging markets, Mobius said.

Emerging Markets

The MSCI Emerging Markets Index has advanced 20 percent in the past 12 months, compared with a 16 percent climb by the MSCI World Index of developed nations. Companies in the developing nations' index trade for 11.7 times estimated earnings, less than developed countries' 13.1 times.

The dollar index has dropped even after the Japanese earthquake and turmoil in the Middle East, whereas investors retreated to the safe haven of the dollar and Treasuries during the global financial crisis, Mobius said.

“That means investors are diversifying out of U.S. Treasuries and going into global markets,” he said. “That's been a big change, which has been beneficial for emerging markets generally.”

Global markets are gradually adjusting to the day when the dollar will not be the main currency, Mobius said. “More instability caused by a big QE3 event will not be good.”

The best places to capitalize on the global bull market are Brazil, Russia, India and China, while in “frontier” markets including Africa, Vietnam, Bangladesh and Pakistan “there are lots of opportunities,” Mobius said.

--Bloomberg News--

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