Tuesday, January 5, 2010

Mark Mobius of Templeton Funds Cautious on Emerging Markets Due to IPO Flood for 1st Time in Long Time


Famed international fund manager Mark Mobius is one of Bloomberg's favorites; I see a story quoting him just about every week in their news stories.  As a long time international investor, he has been incredibly bullish throughout 2009 which is why I pulled up this story.  I actually did a double take when he expressed caution; the reason being a flood of IPOs might finally sop up some of the massive caiptal central banks have injected into the global financial system.  We'll see.
  • Emerging markets are attracting more money from initial public offerings than industrialized nations for the first time ever, a warning sign to Mark Mobius that the record rally in the shares may turn into a 20 percent decline.
  • Faster economic growth may help China, India and Brazil produce the biggest increases in IPOs and almost double sales to $200 billion worldwide, according to Matthew Johnson, the New York-based head of the global-equities syndicate at Barclays Plc. Poland alone may offer more than $10 billion of state-owned companies, according to estimates by UniCredit SpA.
  • When you look at the size of some of these IPOs, they’re pretty massive,” Mobius, 73, who oversees $34 billion of developing-nation assets at Templeton Asset Management Ltd., “At the right price, the IPOs will be absorbed, but you’re going to have some hiccups. It’s too much supply coming out.”  
  • The combined value of China’s sales would be more than twice the $40 billion to $50 billion in the U.S.
  • The 2009 sales exceeded industrialized nations by 160 percent, the first time developed countries attracted less money, annual Bloomberg data starting in 2000 show
As for valuation?  Does it matter anymore?  Stocks are simply a commodity that has supply and demand... you throw more fiat money from every corner of the globe, chasing a relative fixed amount of assets - and prices go up.  Economics 101.   That said, if these were normal times...
  • Companies in the MSCI Emerging Markets Index trade at the highest levels relative to earnings since 2000 after the gauge surged 75 percent and IPOs in developing economies raised $77 billion.   The 767 companies in the MSCI Emerging Markets Index valued at an average 24.2 times earnings, data compiled by Bloomberg show.
They even snuck in Marc Faber into the story:
  • There are some clouds on the horizon,” said Marc Faber, 63, who publishes the “Gloom Boom & Doom” newsletter. “For sure, the supply of equities will go up because the valuations are up,” he said in a phone interview from Da Nang, Vietnam.

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