Tags: Mobius | China | debt | growth

Mark Mobius: Investors Can Bet on Chinese Consumers

Friday, 19 Apr 2013 10:38 AM

By John Morgan

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Emerging markets pro Mark Mobius is bullish on China, despite that nation’s slower economic growth in the first quarter.

Mobius, executive chairman at Templeton Emerging Markets Group, told CNBC he particularly likes investments tied to China’s teeming base of consumers.

“The new administration in China is just getting its game going. I think that growth engine will continue and so we remain bullish on China,” he said.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

Mobius forecast that China will grow 7 to 8 percent annually over the next few years — a torrid growth rate for most countries, but down from the nation’s go-go growth rate of recent years past.

“Once the banks get their balance sheets in order, they will be attractive as they are consumer related, along with the oil companies, which are consumer led to some extent,” he told CNBC.

“Frontier markets are where the action is now,” Mobius stated, noting that Africa, the Middle East and certain areas in Asia are compelling for investors.

Other China market pros also like China

Wendy Liu, head of China equity research at Nomura, forecasts up to 15 percent upside for the iShares MSCI China Index in coming months, CNBC reported. And Steven Sun, head of China equity strategy at HSBC, predicted more than 14 percent upside for the Shanghai Composite by year-end.

Large Chinese financial stocks have felt the impact since the nation’s banks last month were ordered to tighten control over wealth management products and improve transparency.

The Financial Times reported there might be other shoes to drop regarding China’s financial practices.

The newspaper interviewed a senior Chinese auditor at the ShineWing accounting firm who warned local government debt in China is “out of control” and could ignite a bigger financial crisis than the U.S. housing market crash.

The auditor, Zhang Ke, said his firm was pulling back from signing off on bond sales by local governments.

“Most don’t have strong debt servicing abilities. Things could become very serious,” Zhang told the Times.

“The only thing you can do is issue new debt to repay the old. But there will be some day down the line when this can’t go on.”

Local governments in China are prohibited from directly raising debt, so they have used special purpose investment vehicles to circumvent the rules. They then issue bonds under the vehicles’ names to fund infrastructure projects.

There are more than 2,800 counties in China, and local governments doubled the amount of debt they sold in the first quarter of 2013 over the same period last year, the Times reported.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

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