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QE to Help Emerging Markets: Mobius
Jennifer Tan & Weiyi Lim | January 30, 2012

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Emerging market stocks would benefit from the cash injection created by a third round of US asset purchases, with China, Russia and Taiwan looking “attractive,” Templeton Asset Management’s Mark Mobius said.

Federal Reserve Chairman Ben S. Bernanke laid the groundwork last week for a third round of so-called quantitative easing, or QE3, saying that the Fed is prepared for further “accommodation.” The central bank, which bought $2.3 trillion of debt as part of QE1 and QE2, also reiterated a commitment to keep rates low until at least 2014.

“QE3 is very, very good for emerging markets because it means there’s lots of cash in the system,” Mobius, who oversees about $40 billion as executive chairman of Templeton’s emerging markets group, said in a phone interview from Bangkok on Friday. “I would expect more institutional flows into stocks, generally, and of course, emerging markets as well.”

Chinese stocks will “probably see a rally” this week after being closed last week for the Lunar New Year holiday, said Mobius, 75. “There’s no question” China will continue to loosen monetary policy and he recommends consumer, energy and commodity stocks in the country, he said.

The Shanghai Composite Index has climbed 4.5 percent this year on speculation slowing Chinese growth will prompt the central bank to further relax monetary policy and that the government will take measures to support stocks.

The gauge dropped 0.9 percent to 2,298.26 on Monday.

The People’s Bank of China lowered lenders’ reserve-requirement ratios in December for the first time since 2008 as inflation slowed to a 15-month low. China’s economy grew 8.9 percent last quarter, below 9 percent for the first time since the middle of 2009, official data show.

In addition to China, Mobius said equity markets in Taiwan and Russia are “attractive.” Templeton also likes Indonesia and smaller countries including Vietnam, including Cambodia, Laos, Nigeria and Kazakhstan, according to Mobius.

“Emerging markets, even this year, are growing at four times that of developed countries,” he said.

Still, valuations in developing nation stocks are “attractive, almost globally,” Mobius said. He said “rallies should continue” as markets have “already anticipated” a global economic slowdown.

The International Monetary Fund last week cut its forecast for global economic growth this year to 3.3 percent from a September estimate of 4 percent, citing a European recession and slowing expansion in China and India. Growth in 2013 will be 3.9 percent, less than the previous projection of 4.5 percent, the IMF said.

Mobius’ $21 billion Templeton Emerging Markets Fund has returned 12 percent over the past month, compared with a 8 percent average for its peers and the MSCI Emerging Markets Index’s 10 percent gain, data compiled by Bloomberg show.

Bloomberg