Templeton’s Mobius Says Stocks Face 30% ‘Correction’

(Bloomberg) -- Mark Mobius said global stocks will drop as much as 30 percent following their recovery from last year’s rout as companies take advantage of the rebound to sell more shares. “When you have these rapid increases, almost without correction, you will definitely have a correction at some point, so we can expect a lot of volatility,” Mobius, the executive chairman of Templeton Asset Management Ltd. said in an interview in Kuala Lumpur today. “Increases of 70 percent will be followed by decreases of 20 to 30 percent.”The MSCI World Index has climbed 54 percent from a 13-year low on March 9, boosting valuations as governments worldwide spent more than $2 trillion to end the global recession. The rebound prompted a revival in share sales. China State Construction Engineering Corp. and Visa Inc.’s Brazilian affiliate VisaNet raised about $11.9 billion in the world’s largest initial public offerings this year.

The biggest risk for global stocks is the increase in initial share sales and bond issues, Mobius said today. Investors will be “selling to take up new stocks, that will impact the prices,” he said. Mobius, who oversees about $25 billion, on July 29 said he plans to double Templeton Asset Management’s emerging-market assets within two years.Among the 315 IPOs announced globally this year, the average deal size was $118.9 million, Bloomberg data show. U.S. companies issued $851 billion of bonds this year in the busiest period since at least 1999, when Bloomberg began collecting the data.

‘Anytime’
The so-called correction “can happen anytime, probably this year,” Mobius said. “It may not be all at once, you may not see a decrease of 20 percent suddenly, it could be 10 percent here, and a rise of 5 percent then another 10 percent, you’ll see this kind of volatility in the markets.” He added that he was referring to shares “globally.”A correction occurs when stocks fall more than 10 percent from a recent high.Stocks have rallied this year on optimism the deepest economic slump since the Great Depression may be easing. The U.S. economy may be on the cusp of a recovery, Laura Tyson, an adviser to President Barack Obama, said in an interview in Kuala Lumpur yesterday, while Nobel Prize-winning economist Paul Krugman said the slump may be ending.The rally has driven valuations of stocks on the MSCI World Index to 24 times earnings, compared with 9.2 on Nov. 20.Global stocks are fully priced following the rally this year, Hugh Young, who helps oversee the equivalent of $220 billion as Aberdeen Asset Management Plc’s Asian managing director, said on Aug. 6.

Tripled Loans
China’s Shanghai Composite Index, the world’s best- performing major market, has surged 78 percent this year, as banks tripled new loans to 7.37 trillion yuan ($1.1 trillion) in the first half to support a 4 trillion yuan government stimulus package.
“I don’t think it’s a bubble,” because “you don’t have the irrational exuberance so to speak that you would normally find in a bubble activity,” Mobius said. The government’s policies to rein in bank lending are a “good thing,” he said.The People’s Bank of China said earlier this month it will fine-tune monetary policy where necessary and guide “appropriate” lending growth. China Construction Bank Co. President Zhang Jianguo said last week the world’s second- largest bank by market value will reduce new loans by about 70 percent in the second half from the first six months to avert a surge in bad debt.