Tags: Mobius | bull | market | emerging

Mark Mobius: Bull Market Will Continue

Tuesday, 16 Oct 2012 07:55 AM

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Gains in global equities markets will continue, especially in emerging markets, which will be the main beneficiaries of loose monetary policies, said Mark Mobius, executive chairman at Templeton Asset Management’s Emerging Markets Group.

Central banks have slashed interest rates and taken more unorthodox measures to push down borrowing costs in their respective economies, the result being weaker currencies and rising equity and commodities prices.

As a result stock prices have gained and will continue to do so, as monetary tightening is not in the forecast.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

“We’re definitely in a bull market, not only in the U.S., but also in emerging markets,” Mobius told CNBC.

“And in emerging markets, the valuations are cheaper than what you have in the U.S. So putting this all together and of course looking at the way money supply has been increasing, I think the bull market will continue, and now we’ll probably see emerging markets begin to outperform the U.S. market,” Mobius added.

“This last year, emerging markets have underperformed. Now I think they’ll outperform.”

The Federal Reserve has intervened repeatedly to prop up the U.S. economy with three rounds of quantitative easing, under which the U.S. central bank buys bonds such as mortgage-backed securities from banks, pumping the economy full of liquidity in the process that creates conditions ripe for investing in stocks.

The third round is currently under way in which the Fed will buy $40 billion in mortgage debt held by banks a month until monetary authorities feel the economy and labor market have made marked improvements.

While other central banks have rolled out stimulus measures of their own, the Fed’s more aggressive policies are really driving global stock markets.

“They’re the leader globally,” Mobius said.

“They have sort of set the points that everybody else follows, including the Europeans, the Japanese, the Chinese and so forth. So everybody of course is competing to devalue their currencies as much as possible without creating big crises.”

With interest rates at rock-bottom levels in the United States, many investors in search of yield are finding emerging markets to be an attractive alternative.

Still, other experts warn that despite healthy numbers, investors should be wary.

Economies aren’t as hot as they once were and might agitate already wide income disparities, which could stoke already budding political risks.

Labor unrest has broken out in South Africa, while in China, anti-Japan protests continue to unfold.

Meanwhile in Turkey, troops have fired artillery into neighboring Syria to send a message to Damascus that it won’t let unrest spread across the border.

And Russia and India have seen demonstrations, as well.

“People look at indebtedness ratios, debt maturity profiles, growth differentials (in emerging markets) and say it’s a no brainer, you are getting paid 2 percentage points more than elsewhere,” said Greg Saichin, head of emerging debt at Pioneer Investments, according to Reuters.

“But there is a lot of complacency in the market in terms of politics and what may happen with sovereign risk.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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