Mark Mobius, the most experienced emerging markets investor I know of, is urging caution on emerging markets.
The huge run up in asset prices on stock markets from Shanghai to Warsaw is bringing companies to market to sell stock in record amounts.
And that makes Mobius, who guides $34 in emerging market assts at Templeton Asset Management, worry that the supply of new shares will outstrip even the current voracious demand for emerging market stocks.
Initial public offerings (IPOs) on the Shanghai Stock Exchange will double in 2010 to $56 billion, projects Ernst & Young, and climb 96% in Hong Kong to $48 billion.
India is scheduled to sell stakes in 10 state-run companies for $5.5 billion. Poland is looking to raise $10.6 billion by selling stakes in state-run companies.
The size of individual 2010 IPOs looks set to match those of 2009. Last year Banco Santander Brasil (BSBR), the Sao Paulo division of Spain’s Banco Santander (STD) sold $8 billion in Brazil’s largest IPO on record.
This year Agricultural Bank of China is said to be looking to raise about $30 billion.
It isn’t hard to figure out why emerging markets companies are rushing to raise cash: The price is right. The 767 companies in the MSCI Emerging Markets Index are currently selling at an average of 24.2 times earnings, according to Bloomberg. That’s the highest multiple investors have been willing to pay for emerging market earnings since April 2000.
The higher economic growth rates projected for developing economies does indeed make them the place to be for the long run. But not at any price.