Mark Mobius said global stocks will drop as much as 30 percent following their recovery from last year’s rout as companies take advantage of the rebound to sell more shares.
“When you have these rapid increases, almost without correction, you will definitely have a correction at some point, so we can expect a lot of volatility,” Mobius, the executive chairman of Templeton Asset Management Ltd. said in an interview in Kuala Lumpur today. “Increases of 70 percent will be followed by decreases of 20 to 30 percent.”
The biggest risk for global stocks is the increase in initial share sales and bond issues, Mobius said today. Investors will be “selling to take up new stocks, that will impact the prices,” he said. Mobius, who oversees about $25 billion, on July 29 said he plans to double Templeton Asset Management’s emerging-market assets within two years.
The so-called correction “can happen anytime, probably this year,” Mobius said. “It may not be all at once, you may not see a decrease of 20 percent suddenly, it could be 10 percent here, and a rise of 5 percent then another 10 percent, you’ll see this kind of volatility in the markets.” He added that he was referring to shares “globally.”
“I don’t think it’s a bubble,” because “you don’t have the irrational exuberance so to speak that you would normally find in a bubble activity,” Mobius said. The government’s policies to rein in bank lending are a “good thing,” he said.
My take on this: This is the line of thinking that I tend to align with. If you look back last week, I posted some commentary by Ken Fisher where he said there is "zero incentive" for China to curb lending. I agree with Mobius.
I think a correction is only natural after a strong bounce back rally. If we don't see a correction, it would likely lead to a good sized bubble in emerging markets, if that hasn't already begun.
I say this not to imply that emerging markets aren't good investments. They will be leading growth for many years to come. Its more just a shorter term trend that I'm looking at. I still like China and particularly Brazil.