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.
For example?
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.
No, it means Mark Mobius, with his $34 to invest, can say ‘I told you so’ if/when emerging markets go down [or keep silent if/when they go up] – 😉
I hate this sort of nebulous ‘warning’. I have an Indian stock, IBN, and believe the price is a bit extended. I keep selling call options (and collecting premiums), but no exercises, yet.
does this mean that it is time to sell emerging market index and invest in more select countries such brazil ?
Jim, I could not agree more on your overall thesis, but I would caution: There are still plenty of dirt cheap stocks in the emerging markets. For example, there are tons of small cap Chinese stocks with P/E’s in the single digits, and with spotless financial statements (you rarely see an American small cap stock with a spotless financial statement), AND with impressive growth.
While no one should ever invest anywhere blindly, there is still plenty of opportunity in the emerging markets, IF you choose your stocks wisely.
Pending home sales dropped more than expected. Even the jobloss claims are more in December than estimated. Still market is not correcting. Emerging market indicies are trading at higer multiples than ever before. Are we heading for another bubble ????