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Emerging market stocks may drop 20 percent: analyst

Emerging market stocks may drop 20 percent should the US slip into recession, said Mark Mobius, who oversees US$45 billion at Templeton Asset Management Ltd.

The MSCI Emerging Markets Index dropped to the lowest in four months on Thursday, losing 0.6 percent to 1,140.76. The gauge of 926 stocks has lost 15 percent from its high on Oct. 29 last year, hurt by falling commodity prices and concern the US economy may shrink.

CORRECTION COMPLETE?

"We don't think there is going to be much of a decline from here," Mobius said in an interview from Sao Paulo. "Usually these corrections are about 20 percent."

Mobius said he is buying stocks in Russia, China, India, South Africa and Turkey. In Brazil, Mobius said members of every industry are attractive, especially mining companies, oil producers and makers of consumer goods.

"The amount of money in the hands of consumers is very high," he said.

Brazilian stocks have lost 11 percent this year, paring gains over the last year to 33 percent.

`CUT COMING'

Mobius said he expects the US Federal Reserve to cut interest rates and help avert a recession in the US. Odds the US central bank will reduce its target for overnight loans between banks by 0.75 percentage point by Jan. 30 rose to 44 percent on Thursday, futures trading showed. The odds were 40 percent on Wednesday.

"If there is zero growth in the US, not only emerging markets but markets around the world would be impacted. A 20 percent decline for emerging markets would be "quite normal," he said.
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