Policy makers from the U.S. to Brazil and Japan have stepped up efforts to boost their economies with interest-rate cuts, bond purchases and weaker currencies, Mobius, who oversees more than $40 billion at Templeton Emerging Markets Group, said in a phone interview from Nairobi today. Low yields on U.S. Treasuries are sending pension funds and other large investors on an “incredible hunt” for returns, including in so-called frontier markets such as Kenya, he said.
The MSCI Emerging Markets Index (MXEF) has climbed for six days, its longest winning streak in three months, amid speculation the U.S. Federal Reserve will announce an expansion of its bond- buying program today, capping a 13.5 percent rally in 2012 after last year’s decline. The mix of low debt levels, high foreign- exchange reserves and economic growth that may average about 5 percent in 2013 makes the outlook for equities in developing nations “very positive,” Mobius said.
“The more money you have going into the global economic system, the more opportunity there is for a rise in the stock market, and that’s what we’re going to be witnessing this coming year,” said Mobius, whose Templeton Frontier Markets Fund (TFMAX) has outperformed 90 percent of peers in 2012, according to data compiled by Bloomberg. “With interest rates at these levels, equities become very, very attractive.”
Ten-day volatility for the MSCI emerging market gauge fell to the lowest level since 2005 today. The index climbed 0.6 percent to 1,040.71 by 10:44 a.m. in New York. The index will probably rise to 1,125 on improving data from developing economies, Goldman Sachs Group Inc. analysts Robin Brooks and Julian Richers wrote in a client note dated Dec. 10. The index fell 20 percent in 2011.
Emerging markets will lag behind developed nations in 2013, John-Paul Smith, a strategist at Deutsche Bank AG in London, wrote in a e-mailed report dated Dec. 10.
The gauge’s value is equivalent to 13 times reported earnings, with a dividend yield of 2.7 percent, compared with a yield of about 1.7 percent for 10-year Treasuries, according to data compiled by Bloomberg. The MSCI Frontier Markets Index (MXFM) has increased 3.1 percent this year.
The Fed may announce $45 billion in monthly Treasury buying that will push its balance sheet almost to $4 trillion, according to a Bloomberg survey of economists.
Forty-eight of 49 economists predict that the Federal Open Market Committee will purchase Treasuries to bolster an existing program to buy $40 billion in mortgage bonds each month. The Fed is expected to release its policy statement today.
Brazil’s central bank has cut its benchmark interest rate by 3.75 percentage points this year to a record-low 7.25 percent and policy makers have taken steps to weaken the real. Shinzo Abe, whose Liberal Democratic Party is leading in opinion polls ahead of Japan’s Dec. 16 elections, has called for more fiscal stimulus and “unlimited” monetary easing.
The real has weakened about 10 percent against the dollar this year, while the yen has depreciated 7.2 percent.
“We have a situation where countries don’t want their currencies to be too strong, so they print money,” Mobius said. “Everybody is watching everybody else to ensure they’re not going to be left out of the export opportunities.”
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