Mobius Says QE3 Would be ‘Very Good’ for Emerging Stocks as China Rallies
Tuesday, 31 January 2012 | 11:00
Emerging market stocks would benefit from the cash injection created by a third round of U.S. asset purchases, with China, Russia and Taiwan looking “attractive,” Templeton Asset Management’s Mark Mobius said.
Federal Reserve Chairman Ben S. Bernanke laid the groundwork last week for a third round of so-called quantitative easing, or QE3, saying that the Fed is prepared for further “accommodation.” The central bank, which bought $2.3 trillion of debt as part of QE1 and QE2, also reiterated a commitment to keep rates low until at least 2014.
“QE3 is very, very good for emerging markets because it means there’s lots of cash in the system,” Mobius, who oversees about $40 billion as executive chairman of Templeton’s emerging markets group, said in a phone interview from Bangkok on Jan. 27. “I would expect more institutional flows into stocks, generally, and of course, emerging markets as well.”
Mobius’ $21 billion Templeton Emerging Markets Fund has returned 12 percent over the past month, compared with a 8 percent average for its peers and the MSCI Emerging Markets Index’s 10 percent gain, data compiled by Bloomberg show. The developing-nation gauge rose 0.2 percent to 1,018.76 at 9:51 a.m. in Hong Kong.
Chinese stocks will “probably see a rally” this week after being closed last week for the Lunar New Year holiday, said Mobius, 75. “There’s no question” China will continue to loosen monetary policy and he recommends consumer, energy and commodity stocks in the country, he said.
The Shanghai Composite Index (SHCOMP) has climbed 4.5 percent this year on speculation slowing Chinese growth will prompt the central bank to further relax monetary policy and that the government will take measures to support stocks. The gauge dropped 0.9 percent to 2,298.26 today.
The People’s Bank of China lowered lenders’ reserve- requirement ratios in December for the first time since 2008 as inflation slowed to a 15-month low. China’s economy grew 8.9 percent last quarter, below 9 percent for the first time since the middle of 2009, official data show.
Mobius predicted gains in emerging markets in March 2009, when he told Bloomberg Television that developing-nation equities are building the base for the next “bull-market” rally. The MSCI Emerging Markets Index (MXEF) more than doubled from its lows that month to its peak in May 2011.
The measure has risen 11 percent in 2012, after tumbling 20 percent last year. Shares on the emerging-market index trade at 10.1 times estimated earnings, less than the daily average over of 12 in the past four years.
‘Rallies Should Continue’
Valuations in developing nation stocks are “attractive, almost globally,” Mobius said. He said “rallies should continue” as markets have “already anticipated” a global economic slowdown.
The International Monetary Fund cut its forecast for global economic growth this year on Jan. 24 to 3.3 percent from a September estimate of 4 percent, citing a European recession and slowing expansion in China and India. Growth in 2013 will be 3.9 percent, less than the previous projection of 4.5 percent, the IMF said.
Mobius joined Templeton in 1987 to help oversee emerging- market investments, according to a biography posted on the company’s website.
In addition to China, Mobius said equity markets in Taiwan and Russia are “attractive.” Templeton also likes Indonesia and smaller countries including Vietnam, including Cambodia, Laos, Nigeria and Kazakhstan, according to Mobius.
“Emerging markets, even this year, are growing at four times that of developed countries,” he said.