Mark Mobius: Emerging Market Turmoil Will Be 'Temporary'

Tuesday, 28 Jan 2014 11:03 AM

By Dan Weil

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The chaos striking emerging markets, with currencies and asset markets plummeting, won't last, says Mark Mobius, executive chairman of Templeton Emerging Markets Group.

The Turkish lira hit a record low Monday, the South African rand touched a five-year nadir and the Argentine peso registered its biggest daily drop in a decade last week.

"There is a generalization you can make," Mobius tells CNBC. "Those countries that are having balance of payment difficulties are the ones being targeted with the currencies."

Editor’s Note:
5 Shocking Reasons the Dow Will Hit 60,000

Investment money previously flowed into emerging markets, particularly bonds, he explains. Those bond markets were especially "hot" early last year before Federal Reserve officials started talking about tapering quantitative easing (QE).

"As soon as tapering talk started, then everybody got cold feet and started to exit," Mobius notes.

"Of course, these countries that had these flows got into trouble. I would say there's some general impact from the tapering talk."

The Fed began tapering this month, cutting its bond purchases by $10 billion to leave them at $75 billion a month. The central bank has indicated it will likely keep tapering by $10 billion per meeting until QE ends.

But that's different than tightening. "I keep on telling people that the balance sheets of central banks around the world — the Fed, Japan, Europe and so forth — are still enormous," Mobius argues.

"There's no good reason why this [emerging market blowout] is happening. I believe it will be temporary, . . . and we will be able to find buying opportunities along the way."

Markets already are pricing in an end to QE, which would take place in December, if the Fed tapers $10 billion per meeting, he adds. "People are looking ahead at one year. The prices react way before that."

While many institutional investors have exited emerging markets or are in the process of doing so, soon enough, "they'll find that they are underweight severely," he proclaims. "When emerging markets begin to turn, you'll see the rush back in again."

As for the United States, Mobius is bullish on stock prices, though he thinks the current correction could last longer. The Standard & Poor's 500 Index has slipped 3.3 percent from its Jan. 15 record high.

"Nowadays 10, 15, 20 percent is nothing, [given] the kind of volatility that we have," Mobius argues. "So we don't blink when we see this kind of correction. It's not a big deal."

Some experts are more worried about emerging markets than Mobius is. "We think this is the most severe period of under-performance by emerging markets since 1998," Michael Shaoul, CEO of Marketfield Asset Management, tells CNNMoney.

He says emerging markets are plagued by years of weak economic policy along with unstable governments. "Investors are getting out of emerging markets, and the more they look at reasons to get out, the more obvious the reasons are."

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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