Well-known emerging markets investor Mark Mobius has denied that the US Federal Reserve will capsize emerging market equities when it begins reducing its bond purchases.
“I tell people please don't pay attention to tapering,” said Mobius, executive chairman of Templeton Emerging Markets Group, who spoke at the Fund Forum Middle East conference this week in Dubai. “It's insignificant, it's a psychological issue.”
Later, at a private briefing for journalists, Mobius admitted that “psychological issues” can still move markets, and conceded that when tapering finally does begin, his emerging market holdings could expect a short-term hit.
However, he maintains that tapering does not equate to the kind of tightening of monetary policy that could fundamentally weaken the global economy. He adds that large central bank holdings in countries like China will allow central bankers to take counter-cyclical actions.
Mobius concedes that emerging market countries with significant current account deficits will struggle in the coming months, such as India and Indonesia, but believes these disruptions will create buying opportunities. He says an Indian company such as Tata Consultancy, for instance, will thrive if the rupee falls in value again, because its costs are in rupees and most of its revenues are in dollars.
Mobius also took aim at sceptics who believe China's economic statistics to be either deliberately or unintentionally inaccurate. Mobius says his research team has compared official Chinese statistics with Chinese import/export data from the World Trade Organization and found the two sets of statistics to roughly match.
Support for Mobius' views came from Tim Fox, chief economist at Emirates NBD, the Dubai-based banking group, who also spoke at the conference.
“It's been said that the Fed's job is to take away the punch bowl when the party gets going,” says Fox. “But tapering does not amount to taking away the punch bowl, just adding the punch more slowly.”
Fox says the Fed money printing programme is not helping the global economy because, while it may be good for investment bankers, it has not prompted the private sector to increase its spending. The longer QE remains, says Fox, the harder it will be to get rid of, so the Fed should begin tapering its bond purchases soon.
©2012 funds europe