EM Guru Mark Mobius Flip Flops Anew: EM Sell Off Nears End

One of the costs of wildly fluctuating markets has been to expose on the confusions of experts, who try to preserve their public image.

For example I noted that EM guru cheerleader Mark Mobius, who claimed at the start of the year that EM outflows will turn into inflows, suddenly made a volte face last week to predict that EM outflows will “deepen”. This call was made when markets had been going on the opposite direction of his early forecasts.

Now that EM financial markets have shifted from Risk OFF to Risk ON, Mr. Mobius changes his mind for the second time over the past two weeks.

From Bloomberg:

The selloff that triggered the worst start for emerging-market stocks in four years is approaching the end as valuations begin to look attractive, Templeton Emerging Markets Group’s Mark Mobius said.

“We are nearing the point where people are beginning to say ‘hey, it looks pretty good now in terms of valuations,’” Mobius, who oversees more than $50 billion in developing-nation assets as an executive chairman at Templeton, said in an interview on Bloomberg Radio today. “We are probably nearing the end of this big rush out of emerging markets.”

The comments mark a shift in sentiment for Mobius, 77, who said on Feb. 7 that developing nations could “expect a lot more selling.”

The issue of “pretty good now in terms of valuations” depends on how one sees the current environment. 

In my view, when EM economies are facing weak currencies, increasing CPIs and higher bond yields (indicative of higher interest rates) amidst elevated debt levels, then accordingly this means a shift in the valuations landscape as the same factors will not only alter the profit environment, they will also have an impact on consumer demand, credit conditions and credit quality and the supply side growth. If such a shift will be disorderly then this may even lead to a drastic change in the political environment that could also impact again valuations.

In short, a benign environment from zero bound rates and a convulsing environment, which are symptoms of resistance to change against rising rates amidst high debt levels, will extrapolate to apples and oranges comparison. Thus failure to understand such transition would lead to confusions.

And because fund managers earn from varied fees (e.g. Franklin Templeton) from their investor’s portfolio it is understandable for them to promote their interests. Talking down the fund's investment themes may lead to investor withdrawals thus reducing fund fees.

The point of this exercise is not to disparage any experts, particularly on Mr. Mobius whom I respect, but to show of how sharply gyrating markets entwined with industry interests seem to have led some experts to vacillate on their forecasts.