Emerging Mkts May Beat ’08 Highs By End ’10-Templeton

The stock markets of emerging economies could rally to surpass the highs reached in mid-2008 by some 30% by the end of 2010, but not before a sharp market correction from current levels in the short term, Templeton Asset Management Executive Chairman Mark Mobius said Tuesday.

A correction to regional stock markets, which have appreciated by some 70% since early this year, is “inevitable” and “could happen at any time,” the investment guru told Dow Jones Newswires in an interview on the sidelines of a capital market seminar here.

He said with companies’ earnings remaining weak, the rise in stock prices so far this year has meant that “valuations are now relatively lofty” while price-earnings ratios at 20 to 30 times give jittery investors an incentive to take profit in the still-precarious economic recovery. The level of correction may be between 20% and 30% from the current levels in the near term, he added.

Mobius said a resurgence in capital-raising exercises, like initial public offerings and share placements, as well as a recovery in the bond market could divert funds away from the equity market in the short term. “The market is very sentiment-driven right now,” he said.

However, Mobius said the dip could be temporary with emerging markets likely to recover and rise to surpass the previous highs of mid-2008 by some 30% before the end of 2010.

“I am bullish about the prospects (for emerging markets). Next year will be a lot better (than this year). Corporate earnings will improve and coupled with the stimulus packages, there will be a lot more money in the market,” he said.

Mobius said the gains will also be fueled by these economies bouncing back, and “a natural development that growth rates will be higher in the emerging markets (compared with developed markets).”

He said that for Templeton, which manages some $25 billion in assets, countries like China and Brazil will be priorities, together with new emerging economies in central Asia, the Middle East and Africa.

Indian stocks, however, “are looking a little expensive right now,” Mobius said.

The adviser to the Indian Prime Minister Raghuram G. Rajan had said in the conference that emerging economies may need to craft a bigger role in stimulating demand during the recovery phase of the global economy, as developed countries like the U.S. face “subdued” growth rates.

U.S. Presidential adviser Laura Tyson, meanwhile, has said that the country may require another stimulus package on concerns that economic growth could falter after the impact of the first $787 billion stimulus spending package fades late next year.

Mobius said “it will be positive” on equity markets if the U.S. decides to implement a second stimulus package.