Two weeks ago, 81-year-old investing legend Mark Mobius said he believes that the US market is on the verge of a 30% collapse that would essentially wipe out the gains of the last two years.
The renowned fund manager, who left Franklin Templeton after more than 30 years in January, said “all the indicators” point to a large fall in the markets.
“I can see a 30% drop,” said Mobius, who launched one of the world’s first emerging market funds. “When consumer confidence is at an all time high, as it is in the US, that is not a good sign.
“The market looks to me to be waiting for a trigger that will cause it to tumble. You can’t predict what that event might be — perhaps a natural disaster or war with North Korea.”
But now, just four months after "retiring," Mobius is coming back as Bloomberg reports he is setting up a new asset management firm to invest in emerging and frontier markets.
Mobius Capital Partners LLP has yet to line up outside investors and wants to raise about $1 billion within two to three years.
"I wasn’t ready to retire and I was ready for something new after 30 years at Franklin Templeton," Mobius, who has spent more than 40 years working in emerging markets, said on Wednesday.
“With all this money going in ETFs and passives, there is a real role for active management where we go into companies and we try to achieve change," he said in a Bloomberg Television interview.
Oh, and he also repeated to CNBC that another 30%/40% drop may be imminent:
Very much enjoyed speaking w EM fund manager titan Mark Mobius - today he launched a new fund focused on ESG— Joumanna Bercetche (@CNBCJou) May 2, 2018
Part of our chat below: we spk about a possible stock market correction (30/40%?), an overzelous Fed, fixed income & not included: his bullishness on #USD@MarkMobiusReal pic.twitter.com/LGELuGCQhB
His timing may be perfect - judging by the trends that are beginning to occur in EM debt and equity markets...
Bloomberg reports that foreign-currency bonds of developing nations are seeing bigger losses than during the Asian currency crisis, dot-com bust or the 2008 financial crisis. The Bloomberg Barclays gauge for emerging-market dollar debt has slid 2.5 percent since the start of the year, the worst performance in a January-April period since 1995.
U.S. Treasury yields around 3 percent are fueling the selloff, underscoring emerging markets’ vulnerability to a stronger dollar.
Additionally, Nomura's Charlie McElligott notes that emerging markets equities continue to look perhaps as the area which remains most exposed to a further re-pricing in USD, on account of asymmetric positioning accumulation and (il)liquidity. TFF data tells us that despite Asset Managers reducing their longs by $6B last week / Leveraged Funds reducing their longs by $3.9B last week, they remain +$195.5B and $34.6B “long,” respectively.
Since the history of the data beginning in ’11, the current AM ‘net long’ in EM eq currently sits at an absurd 2.5 z-score, while the Leveraged Fund EM ‘net long’ too remains historically high @ 0.8 z-score:
You can see this scale of this incredible “length” accumulation in the net notional positioning charts below:
* * *
So perhaps it is not surprising that Mobius sees opportunity to pile investor money into these markets after the carnage clears.
Frontier markets are very vulnerable to the price of oil, particularly if it rises sharply, Mobius said in the Bloomberg Television interview. “We would love to invest in Iran because they do have an active capital market, but because of the sanctions you just can’t do that. I think there’s going to be a breakthrough and there’ll be an opportunity.”