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Long-term prospects counter concerns

A market correction in emerging market equities of up to 20 per cent is possible in the coming months but the longer-term trend is upwards.

Speaking last week at a 20th anniversary event for the Templeton emerging markets investment trust at the Dorchester Hotel in London, the firm’s emerging markets group chairman Mark Mobius said that emerging markets had risen by almost 60 per cent from their lows but market corrections were inevitable.

He said: “I think there has to be corrections on the way, that is the nature of the beast. A correction of 10, 15, even 20 per cent is nothing these days, particularly with the amount of derivatives out there. There must be a lot of hedge funds out there shorting this market because they think things have run too far.”

At April 30, the 1.2bn Temit was up by 28 per cent compared with an increase of 22.5 per cent in the MSCI emerging markets index over three months.

Mobius said the 370tn derivatives market represented 10 times the global GDP and would therefore create an “incredible amount of volatility and leverage” which was unlikely to cease in the near term. He continues to try to be as fully invested as possible in emerging markets and remains “pretty confident” they will continue to outperform developed countries.

He said: “We have to hang on and not panic by these kind of corrections because we know the longer-term trend is up, there is no question in our mind of that.

“Be ready for the volatility but also be confident that these markets will continue to move up as the money supply and velocity of money increases.”

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