Hong Kong/Shanghai: The next bull market rally has begun and there are bargains in every emerging market following a record slump in stocks, Templeton Asset Management Ltd’s Mark Mobius said.
The MSCI Emerging Markets Index has jumped 23% since reaching a four-year low on 27 October, outperforming the 2.5% drop in the MSCI World Index and a 9.5% decline in the Standard and Poor’s 500 index. Emerging markets made up the 10 best-performing benchmark gauges this year, led by the 26% gain for China’s Shanghai Composite Index.
Too good? A stock price monitor in Shanghai. Some analysts describe the recent Asian stock gains as a temporary bear market rally. Eugene Hoshiko / AP
“You have to be careful not to miss the opportunity,” said Mobius, who oversees about $20 billion (about Rs1 trillion) of emerging market assets as executive chairman at Templeton. “With all the negative news, there is a tendency to hold back.”
Emerging markets are in better shape than developed economies, Mobius said. The fund is looking for companies that are cash-rich, have low debt and higher dividend yields, or those that can invest for future growth, yet have cash left to pay shareholders, he added.
A company’s participation in derivatives is warning against some stock selections, Mobius, 72, said in a Bloomberg Television interview from Hong Kong. “No longer are we satisfied with the explanation that ‘Oh, it’s just plain vanilla’, given the huge losses incurred at financial companies,” he said.
Citigroup Inc.’s analysts Markus Rosgen and Elaine Chu are among strategists who describe recent Asian stock gains as a temporary bear market rally.
“You are going to see a lot of bouncing off the bottom because there’s a tremendous amount of uncertainty in the market,” Mobius said, “But I have a feeling we’re at the bottom and now we’re building a base for the next bull market.”
Mobius correctly predicted in December that emerging markets will rebound before developed nations. In 1999, he was voted among the Top Ten Money Managers of the 20th Century in a survey by the Carson Group, and in 2006 he was included in the Top 100 Most Powerful and Influential People by Asiamoney magazine.
Investors who poured $502 million into Asian equity funds over the past two weeks may lose out once the bear market rally falters, Citigroup said in a note on Monday, citing a 30% drop after an initial rebound in the 1997 slump. Citigroup’s Rosgen and Chu wrote in the note on Monday they remained sceptical the rally is sustainable because valuations have yet to plumb the lows seen in past recessions.
Fidelity Investments, the world’s biggest mutual fund company, is among the sceptics on predictions about the timing of the market cycle.
“No one can call the bottom in the stock market. No one managed to do it. We can’t do it. We don’t have a crystal ball,” Tal Eloya, a portfolio manager at Fidelity Investments, said in a briefing in Seoul on Monday. “We have to think long term and invest over a long-term horizon.”
Mobius’s view that stocks will rally is shared by investor Antoine van Agtmael, who is credited with coining the term emerging markets.
“Relative to potential sustainable growth and quality, emerging markets today are cheaper than I have seen them at any time since I started to invest 30 years ago,” van Agtmael, who oversees about $8.6 billion as chairman and chief investment officer at Emerging Markets Management Llc., had said in a phone interview on 19 March. “Things have gone too far down.”
Asian stock market valuations outside of Japan fell to 0.9 times book value during the 1975 and 1982 recessions, according to Citigroup. The MSCI Asia excluding Japan Index is now valued at 1.3 times book value.
Brazilian oil company Petroleo Brasileiro SA, Cia Vale do Rio Doce, the world’s biggest iron-ore producer, and Chinese oil producer PetroChina Co. Ltd are among the top holdings of Mobius’ Templeton Emerging Markets Trust.
Mobius continues to favour China Mobile Ltd, the world’s biggest wireless carrier, as it is the dominant player in the biggest telecommunications market in the world.
He also likes Denway Motors Ltd, a Chinese partner of Honda Motor Co. Ltd, saying that it will survive a move by China to combine the nation’s 14 largest auto makers into 10.
“They have a very good position and image,” Mobius said. “A very well-run company and the fact that you have a foreign shareholder and a Chinese shareholder in the same company is beneficial to minorities because minorities will be protected.” firstname.lastname@example.org
Leslie Tan in Singapore and Saeromi Shin in Seoul contributed to this story.