Templeton star Mark Mobius sees the latest falls in Brazil, Russia, India and China (Bric) as a corr...
Templeton star Mark Mobius sees the latest falls in Brazil, Russia, India and China (Bric) as a correction, not the end of the market bull run.
According to MSCI data, its Bric index fell to 213.553 points on 31 May from a high of 243.114 on 28 April. This compares to 226.803 as at 31 March, 224.531 on 28 February and 217.437 on 31 January.
Despite this, currently there are no strong signs of a global economic crisis although there are concerns regarding the US fiscal and trade deficit, according to Mark Mobius at Franklin Templeton Investments.
He says: "The emerging market volatility comes against the backdrop of almost three years of big gains seen by stock markets worldwide and while these gains were eroded in the past few weeks, market fundamentals support the argument that this correction should be short-lived.
"P/E ratios in most stock markets are near to, if not below, their long-term averages, emerging markets P/Es are below those of the US and Germany, supporting the case that the readjustment served to let some of the air out of the tires of stock markets that had moved up substantially.
"More specifically, due to this re-correction Bric stock markets have simply taken a much needed breather after a strong run-up, much of it driven by momentum buying.
"But given the reasonable level of valuation for a number of high-quality companies, we still cannot justify exiting any of these markets. In fact, we see the correction as an opportunity to buy further and are sanguine about their prospects."
Jerome Booth, head of research at Ashmore, agrees and says now is the time to buy in the equity and debt markets in the Bric nations.
He says: "Although equity markets are currently volatile, they are not as volatile as in the past and the recent market movements in no way reflect a crisis. A crisis has to take into account real risks - and if we look at it laterally, emerging markets are not much more volatile than developed market equities, which are more strained.
"The Brics are really good credits and there is a real buying opportunity in the equity market at the moment as well as the debt market.
"Savings are very high in Asia, Brazil and Russia, which has a lot of repatriate capital coming into it. India is much less volatile but it is a closed market and we are likely to see strong local investment in coming months. All we are waiting for is the trigger and this will occur when markets begin to stabilise.
"Emerging markets in terms of longer periods are an attractive investment, the only question is what to buy now."
Looking at China specifically, Booth believes it is doing really well, with a significant broadening of growth in all sectors. He explains: "There are likely to be more interest rate moves and appreciation of the currency." The fundamentals also remain strong for Brazil, with further interest reductions imminent.
"If they were to cut interest rates faster, currently 15.25%, then in three years there would be huge investment growth," he says. "Inflation is running below 5% and interest rates quite simply need to come down. There is a huge fiscal surplus, strong current account deposits and a strong macroeconomic outlook, that continues to improve."
However, Booth believes going forward equities in India might remain less popular than those of other Bric countries.
He adds: "India is in a macro crisis for years and what there is now is a domestic equity market, which has very good names that are well supported. From an equities point of view, this might be less popular than the other Brics."
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