Mobius: IPOs to blame for last year’s EM slowdown

Franklin Templeton’s emerging market heavyweight Mark Mobius has blamed the flood of initial public offerings (IPOs) in emerging markets during 2010 for EM stocks’ underperformance last year.

Mobius, who runs the £2bn Templeton Emerging Markets investment trust, said the money pulled out of secondary markets following 2010’s bumper IPO year is to blame for market declines. He pointed to China’s Shanghai index, which posted a fall of 20% last year.

His view contrasts with the consensus opinion that shares tumbled in 2011 as part of a wider risk-off trade. “The underperformance across emerging markets last year was directly down to the vast number of IPOs in the emerging market space in 2010 which has driven a lot of money away from the secondary market. It was not because of risk aversion,” said Mobius.

“Last year IPOs fell by half so the market will be a lot better supported and I expect it to outperform for the year.” The manager estimated $540bn of capital flowed out of the secondary markets in 2011, with emerging market stocks suffering as a result. 

Last year EM economies also suffered against a background of heightened volatility, leading a number of countries to revise down their GDP forecasts. China, the world’s second biggest economy, has not been immune to a slowdown in growth, and the country has cut its annual GDP growth forecast to 7.5%.

This is the first time in eight years Chinese authorities have lowered their forecast. Mobius said he was not surprised by the revision, adding it is a necessary step if China is to fulfill its ambition to become more of a domestic-focused economy.

“Chinese growth has been far too rapid and I think policymakers will continuing concentrating efforts to ensure growth slows down marginally, in order to boost exports.”

 

This article first appeared in Investment Week

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