Bull run ‘breakout’ at year end

SINGAPORE, May 11 — Templeton Asset Management’s veteran fund manager Mark Mobius is so bullish on emerging markets that he thinks the recent dramatic stock market surge is barely the beginning.

He believes the “breakout” for emerging market stocks has not yet happened.

The money manager said the bull run could start in earnest at the end of this year and could even breach the highs that were seen about two years ago. “It could go higher than (in) 2007, as we’re now in a different era. A lot of companies are much stronger, with stronger balance sheets,” he said in a recent interview.

Mobius’ confidence comes as many market analysts are urging investors to be careful as the current rally may be a false dawn. For example, economist Andy Xie has cautioned that this is a bear market bounce that will end in tears.

But why the bearish outlook?

Mobius, who in 2006 was named one of the Top 100 Most Powerful and Influential People by Asiamoney magazine, explained: ‘Because they lost so much money in the downfall, they are very bearish. They said “never again”.

“You’ll find all kinds of doom scenarios out there. Some will say it’ll get worst and that the markets will go down further, while others say that there’ll be a depression greater than (in) the 1930s.”

Mobius, who is bullish on commodities as well as companies that cater to emerging market consumers, thinks this economic downturn is “not as bad” as the Great Depression of the 1930s in the US.

“During the Great Depression, there were no guarantees on bank deposits...People had bank deposits and they didn’t get one cent back. And there was no social security system,” he said.

Mobius said China’s rapid growth would spur demand for consumer goods, and Chinese consumers, in spite of their high propensity to save, would continue to spend.

“Their savings rate is high, but per capita income is going up, so they are able to devote a high proportion to not only saving but also spending,’ he added.

“The Chinese government is also subsidising purchases, giving rebates, and that should drive more consumption.”

Reiterating what he told investors earlier this year, he said: “We’re building a base for the next bull market.”

But Mobius cautions investors not to put all their money into the markets right away, but to dollar cost average (invest regularly with small amounts) over, say, a year.

“You’ll have the jagged movement up and down...and lots of volatility. Until all the bears are out and confidence has returned, then you’ll see a breakout. When that happens, it’s anyone’s guess, but we’re looking at the end of this year, possibly,” he said. — The Straits Times