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The next “bull-market” rally has begun and there are bargains in every emerging market following a record slump in stocks, Templeton Asset Management Ltd.’s Mark Mobius said on March 23.

“You have to be careful not to miss the opportunity,” said Mobius, who helps oversee about US$20 billion of emerging- market assets as executive chairman at San Mateo, California- based Templeton. “With all the negative news, there is a tendency to hold back.”

Emerging markets are in “better shape” than developed economies, Mobius said. The fund is looking for companies that are “cash-rich,” have low debt and higher dividend yields, or those that can invest for future growth yet have cash left to pay shareholders, he said.

The MSCI Emerging Markets Index has jumped 23% since reaching a four-year low on Oct 27, outperforming the 2.5% drop in the MSCI World Index and 9.5% decline in the Standard & Poor’s 500 Index. Emerging markets made up the 10 best-performing benchmark gauges this year, led by the 26% gain for China’s Shanghai Composite Index.

A company’s participation in derivatives is warning against some stock selections, Mobius, 72, said in a Bloomberg Television interview from Hong Kong.

“No longer are we satisfied with the explanation that ‘oh, it’s just plain vanilla,’” given the huge losses incurred at financial companies, he said.

Citigroup Inc.’s analysts Markus Rosgen and Elaine Chu are among strategists who describe recent Asian stock gains as a temporary “bear-market rally.”

“You are going to see a lot of bouncing off the bottom because there’s a tremendous amount of uncertainty in the market,” Mobius said, “But I have a feeling we’re at the bottom and now we’re building a base for the next bull market.”

Mobius correctly predicted in December that emerging markets will rebound before developed nations. In 1999, he was voted among the “Top Ten Money Managers of the 20th Century” in a survey by the Carson Group, and in 2006 he was included in the “Top 100 Most Powerful and Influential People” by Asiamoney magazine.

Investors who poured $502 million into Asian equity funds over the past two weeks may lose out once the “bear-market rally” falters, Citigroup said today in a note, citing a 30 percent drop after an initial rebound in the 1997 slump. Citigroup’s Rosgen and Chu wrote in a note today they remained “skeptical” the rally is sustainable because valuations have yet to plumb the lows seen in past recessions.

Fidelity Investments, the world’s biggest mutual fund company, is among the skeptics on predictions about the timing of the market cycle.

“No one can call the bottom in the stock market. No one managed to do it. We can’t do it. We don’t have a crystal ball,” Tal Eloya, a portfolio manager at Fidelity Investments, said in a briefing in Seoul today. “We have to think long term and invest over a long-term horizon.”

Mobius’s view that stocks will rally is shared by investor Antoine van Agtmael, who is credited with coining the term “emerging markets.”

“Relative to potential sustainable growth and quality, emerging markets today are cheaper than I have seen them at any time since I started to invest” 30 years ago, van Agtmael, who oversees about $8.6 billion as chairman and chief investment officer at Emerging Markets Management LLC, said in a phone interview March 19. “Things have gone too far down.”

Asian stock market valuations outside of Japan fell to 0.9 times book value during the 1975 and 1982 recessions, according to Citigroup. The MSCI Asia excluding Japan Index is now valued at 1.3 times book value.

Brazilian oil company Petroleo Brasileiro SA, Cia. Vale do Rio Doce, the world’s biggest iron-ore producer, and Chinese oil producer PetroChina Co. are among the top holdings of Mobius’s Templeton Emerging Markets Trust.

Mobius continues to favor China Mobile Ltd., the world’s biggest wireless carrier, as it is the “dominant player in the biggest telecommunications market in the world.”

He also likes Denway Motors Ltd., a Chinese partner of Honda Motor Co., saying that it will survive a move by China to combine the nation’s 14 largest automakers into 10.

“They have a very good position and image,” Mobius said. “A very well-run company and the fact that you have a foreign shareholder and a Chinese shareholder in the same company is beneficial to minorities because minorities will be protected.” – Bloomberg

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The Malaysian equity market would be slower to recover compared with Hong Kong and Singapore, which could stage rebounds towards year-end, as investor confidence returns.

CIMB Private Banking co-head Carolyn Leng also said the KL Composite Index may not recover as strongly as other markets, as it had held up quite firmly during the recent crisis.

However, she said local companies in sectors such as oil and gas, and blue chips with strong track records, showed good earnings potential going forward.

“More importantly, companies with good cash flow would be able to withstand this crisis,” she said.
From left: CIMB Private Banking co-head Carolyn Leng, CIMB Bank head of retail banking Peter England and CIMB Private Banking co-head Alan Inn on March 18.

She noted that high net investors were slowly nibbling back into equity investments in markets such as China, as confidence slowly picked up with the introduction of the stimulus package by its government.

“There are investing activities in this market, but not as significant,” she said.

She added that CIMB Private Banking aimed to manage RM10bil in assets from RM4bil currently, but declined to give a target timeline.

Meanwhile, CIMB Investment Bank economist Lee Heng Guie said the Malaysian economy was envisaged to stage a strong recovery in 2011.

“Although Malaysia’s fundamentals are much stronger compared with the previous downturn, its (economic) growth has been affected by the global crisis,” he said.

He noted that to further support demand, Bank Negara would need to cut the overnight policy rate (OPR) by another 50 basis points to 1.5% by year-end.

“But it would not be constructive to cut OPR any further,” he added. – The Star

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Business Times market outlook by Kaladher Govindan reported that Share prices on Bursa Malaysia rose last week, with most of the week’s gains captured on Friday on hopes federal funds will flow again to boost economic growth in Perak following the takeover of the state government by the Barisan Nasional (BN) from Pakatan Rakyat.

Gains were led by banks BCHB, Maybank and Public Bank, with core plantation stocks KL Kepong and Sime Darby lending a hand as crude palm oil prices climbed above the RM1,800 per tonne level.

Bursa Malaysia’s exceptional performance last Friday was a total contrast to the performance of regional markets and Wall Street. The takeover of Perak by the BN could have instilled some confidence that it would pave the way for fast implementation of public projects in the state as it is a known fact that public spending has taken a back seat after March last year.

Nevertheless, the 12-point surge in the benchmark Kuala Lumpur Composite Index (KLCI) for the week was not backed by strong volume and suggests that it has been propped up by institutional players picking up counters like Bumiputra Commerce, KL Kepong, Maybank, Public Bank and Sime Darby.

The index is expected to move further upwards to test the psychological resistance at 900 before testing 920. While the performance of the Dow Jones Industrial Average last Friday would provide some support for the upside, anticipation of further positive developments for the BN ahead of the Umno party elections in March will also help lift market momentum.

The Dow surged 217 points or 2.7 per cent to 8280.6 last Friday despite the worse-than-expected non-farm payroll numbers that saw the biggest decline since December 1974 as employers cut headcounts for the third consecutive month by 598,000 people. The New York stock market rallied despite the weak number that came above a consensus estimate of 540,000 people as the dismal figure is expected to prompt the US government to announce more aggressive measures to revive the banking industry, which could include taking up more stakes in them without nationalising them.

Back on the local front, investors are advised to sell into any bear market rally as the situation is expected to turn ugly before recovering. For instance, corporate earnings are expected to take a beating in the current environment and equity valuation could dive further from current levels as more companies report weaker-than-expected earnings in the current fourth quarter 2008 reporting season that will be concluded this month.

Listed companies are expected to take advantage of the current doom and gloom outlook to spring clean their balance sheet by making additional provisions and write-offs. Overall, earnings could contract by 2.7 per cent in 2008 compared to a double-digit growth in the year before.

In the broader economy, consensus is expecting the industrial production, export and import numbers that will be released on Wednesday and Thursday to contract by 10.4 per cent, 8.3 per cent and 11.3 per cent respectively. Weaker-than-expected numbers have the potential to dampen any bear market rally.

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