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Mobius, Citi See No Bubble in Foreign Stocks

Friday, 05 Nov 2010 09:00 AM

Emerging-market stocks climbed for a seventh day as Citigroup Inc. predicted a “super-Goldilocks” economy will send shares to record highs next year and investor Mark Mobius said the rally faces no risks any time soon.

Citigroup’s New York-based strategist Geoffrey Dennis wrote in a Nov. 4 report the MSCI Emerging Markets Index will jump 30 percent to an all-time high in 2011. Mobius, who oversees about $34 billion at Templeton Asset Management Ltd., said in an interview the Federal Reserve’s bond-purchase plan will fuel a global stock rally and emerging markets are the “bright spot.”

The outlooks echo bullish forecasts from Traxis Partners LLC’s Barton Biggs and Goldman Sachs Asset Management’s Jim O’Neill as surging economic growth prompts investors to pour money into developing nations at a record pace. The benchmark MSCI Emerging Markets Index is heading for its biggest weekly advance in a year after the Fed said on Nov. 3 it will buy an additional $600 billion of Treasuries through June to bolster growth in the world’s largest economy.

“The weak, but not recessionary, macro situation in developed countries is a ‘super-Goldilocks’ environment,” Dennis wrote in the report. “The underlying conditions that have driven markets higher over the past few months remain in place and are likely to do so for several more quarters.”

The MSCI emerging-markets index increased 0.3 percent to 1,154.33 at 11:15 a.m. in London, bringing its gain this week to 4.4 percent. The 21-country benchmark gauge has advanced 17 percent this year, extending a record 75 percent rally in 2009.

‘Far From Bubble’

The index is valued at 11.9 times analysts’ 12-month earnings estimates and 2.2 times net assets, according to data compiled by Bloomberg. That compares with ratios of 14.9 and 2.9 when the MSCI gauge peaked in October 2007, the data show.

Emerging-market stock valuations are “far from bubble territory,” Dennis said. He predicted the MSCI gauge will climb to 1,500, or 12 percent higher than its all-time peak on Oct. 29, 2007. That would leave the gauge valued at about 13 times estimated earnings and 2.8 times net assets, or book value, Dennis wrote.

The rally may end when investors anticipate a tightening of monetary policy by the Fed in 2012 with near-term risks including a “double-dip” in the U.S. economy, “aggressive” interest-rate increases by China and a rebound in the dollar, Dennis said.

Societe Generale SA’s Albert Edwards wrote in a research report on Nov. 4 that buying emerging-market equities is “the biggest consensus trade at the moment” and share prices will plunge as the U.S. economy falls back into a recession.

Mobius said the U.S. will keep expanding and his funds are fully invested. Emerging-market equity mutual funds attracted more than $60 billion of inflows this year, according to data compiled by Cambridge, Massachusetts-based research firm EPFR Global.

“I’m pretty optimistic,” Mobius said. “I don’t see any risks any time soon. These things can last for years and years.”

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Emerging-market stocks climbed for a seventh day as Citigroup Inc. predicted a super-Goldilocks economy will send shares to record highs next year and investor Mark Mobius said the rally faces no risks any time soon.Citigroup s New York-based strategist Geoffrey Dennis...
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