Sat, Feb 08, 2014 - Page 15 News List

Emerging markets sell-off to deepen, Mobius forecasts

Bloomberg

The worst is not over for emerging markets after the benchmark stock index sank to a five-month low and the nations’ currencies tumbled, Templeton Emerging Markets Group’s Mark Mobius said.

“The negative sentiment is pretty much in place so you can expect a lot more selling,” Mobius, 77, who oversees more than US$50 billion in developing nations as an executive chairman at Templeton, said in an interview from Rio de Janeiro yesterday.

“We are looking, but actually not buying at this stage. Prices can come down or take time to stabilize,” he added.

The outlook from Mobius, a consistent advocate of emerging markets who has been investing in the countries for more than 40 years, contrasts with that of Jim O’Neill, the former chairman of Goldman Sachs Asset who coined the term BRIC for Brazil, Russia, India and China in 2001, and said this week that the rout created a buying opportunity. The MSCI Emerging Markets Index has dropped 11 percent from an Oct. 22 high and is valued near its biggest discount in five years against the MSCI World Index of advanced-country shares.

Emerging-market assets are tumbling as China’s economy slows, weak currencies from India to Turkey spur central banks to raise interest rates and the US Federal Reserve pushes ahead with plans to reduce monetary stimulus. Investors removed more than US$12 billion from developing-nation equity funds in the past two weeks, the biggest outflow since January 2008, according to Morgan Stanley, citing data from EPFR Global.

The retreat dragged down the MSCI Emerging Markets Index’s valuation to 11 times reported earnings at the end of last week, a 40 percent discount against the MSCI World index — the widest gap since October 2008, data compiled by Bloomberg show. More than US$2 trillion has been erased from global equities this year.

Market volatility will rise toward its long-term average and that means an increase in risk premiums, said Philip Moffitt, the head of fixed income in Sydney for Asia and the Pacific at Goldman Sachs Asset Management, said in an interview on Thursday.

“We probably are closer to a good opportunity to buy some of these things rather to join in the panic,” O’Neill said in a Bloomberg Radio interview on Tuesday with Kathleen Hays.

The US-domiciled Templeton Frontier Markets Fund has topped 98 percent of its peers in the past three years with a 4.6 percent annualized return, according to data compiled by Bloomberg. The fund, which managed about US$1.5 billion of assets at the end of December last year, had its biggest holdings in Middle East and Africa, according to a fact sheet on the firm’s Web site. Templeton’s US$13 billion Asian Growth Fund has outperformed 89 percent of peers in the past five years.

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