Monday, 10 August 2009

Global stocks could correct by 30% says Mobius

Bloomberg has a story dated August 10th which quotes Mark Mobius saying that global stocks will drop as much as 30 percent following their recovery from last year’s rout as companies take advantage of the rebound to sell more shares. The chart of the MSCI World Index can be gauged from the chart above which tracks ACWI the exchange traded sector fund based on this index.

Here are some of the relevant quotes

“When you have these rapid increases, almost without correction, you will definitely have a correction at some point, so we can expect a lot of volatility,” Mobius, the executive chairman of Templeton Asset Management Ltd. said in an interview in Kuala Lumpur today. “Increases of 70 percent will be followed by decreases of 20 to 30 percent.”

The MSCI World Index has climbed 54 percent from a 13-year low on March 9, boosting valuations as governments worldwide spent more than $2 trillion to end the global recession. The rebound prompted a revival in share sales. China State Construction Engineering Corp. and Visa Inc.’s Brazilian affiliate VisaNet raised about $11.9 billion in the world’s largest initial public offerings this year.

The biggest risk for global stocks is the increase in initial share sales and bond issues, Mobius said today. Investors will be “selling to take up new stocks, that will impact the prices,” he said. Mobius, who oversees about $25 billion, on July 29 said he plans to double Templeton Asset Management’s emerging-market assets within two years.

Among the 315 IPOs announced globally this year, the average deal size was $118.9 million, Bloomberg data show. U.S. companies issued $851 billion of bonds this year in the busiest period since at least 1999, when Bloomberg began collecting the data.

The so-called correction “can happen anytime, probably this year,” Mobius said. “It may not be all at once, you may not see a decrease of 20 percent suddenly, it could be 10 percent here, and a rise of 5 percent then another 10 percent, you’ll see this kind of volatility in the markets.” He added that he was referring to shares “globally.”

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