Mark Mobius, who oversees $53 billion in emerging markets, said he has confidence in China’s central bank and is keeping his overweight position in the nation’s equities following a five-day tumble.
“We should be confident about what the government is doing and they are cleaning up the system,” Mobius, the executive chairman of Templeton Emerging Markets Group, said in a phone interview today from Monaco. “We are looking to add to Chinese exposure if the price is right. If the price comes down substantially, we would.”
The Shanghai Composite Index has tumbled 9.3 percent in the past five days, sending valuations to the lowest level on record, as interbank borrowing costs reached all-time highs. The gauge slipped 0.2 percent today, rebounding from an earlier 5.8 percent plunge, amid speculation the government will take steps to support financial markets. Liquidity risks are controllable and seasonal forces affecting interest rates will fade, a People’s Bank of China official said today.
China’s cabinet, led by Premier Li Keqiang, said last week that finance companies must do more to support economic transformation and reduce risks, after administrative measures to crack down on property prices and local government investments were bypassed by so-called shadow banking activities.
A gauge of financial shares in the CSI 300 Index slumped 12 percent in the past five days amid concern higher interbank borrowing costs will hurt some lenders’ earnings. The seven-day repurchase rate, a gauge of liquidity in the interbank market, rose 68 basis points today to 8 percent, according to a fixing by the National Interbank Funding Center. That is more than double this year’s average of 3.78 percent.
The central bank will closely monitor the money-market rate going forward and keep it at reasonable levels, Ling Tao, deputy director of the Shanghai branch of the PBOC, said at a briefing in Shanghai today.
China’s major banks “are not going to have a problem,” Mobius said.
The Shanghai Composite index is valued at 8 times estimated 12-month earnings, the lowest level on a weekly basis since Bloomberg began compiling the data in 2006. That compares with a multiple of 9.2 for the MSCI Emerging Markets Index.
Mobius said in a June 2012 interview that he was adding to Chinese equities after valuations plunged. The Shanghai index fell as much as 15 percent through Dec. 3, before rallying 24 percent to a high in February.
“China is very, very key part of the whole EM space and we will continue to be invested in China,” the fund manager said. “Not only in our China fund but also our global fund, Asia fund and in the private equity area.”