"The negative sentiment is pretty much in place so you can expect a lot more selling," Mr Mobius, 77, who oversees more than $50 billion in developing-nation assets as an executive chairman at Templeton, said in an interview from Rio de Janeiro on Friday. “We are looking but actually not buying at this stage. Prices can come down or take time to stabilise."
The outlook from Mr Mobius, a consistent advocate of emerging markets who's been investing in the countries for more than 40 years, contrasts with that of Jim O'Neill, who created the BRIC moniker for the four largest developing economies and said last week that the rout created a buying opportunity. The MSCI Emerging Markets Index has risen 2.4% in the past two days, trimming its year-to-date decline to 6.4%. It's valued near its biggest discount in five years versus the MSCI World Index of advanced-country shares.
Emerging-market assets are tumbling as China's economy slows, weak currencies from India to Turkey spur central banks to raise interest rates and the US Federal Reserve pushes ahead with plans to reduce monetary stimulus. Investors removed more than $12 billion from developing-nation equity funds in the past two weeks, the biggest outflow since January 2008, according to Morgan Stanley, citing data from EPFR Global.
The retreat dragged down the MSCI Emerging Markets Index's valuation to 11 times reported earnings at the end of last week, a 40% discount versus the MSCI World index, the widest gap since October 2008, data compiled by Bloomberg show. More than $2 trillion has been erased from global equities this year.
Market volatility will rise toward its long-term average and that means an increase in risk premiums, said Philip Moffitt, the head of fixed income in Sydney for Asia and the Pacific at Goldman Sachs Asset Management, said in an interview on Friday.
The emerging-market stock gauge increased 0.9% at 9:39 am in New York and headed for its first weekly gain since the five days ended Jan 17. An index of developing-nation currencies climbed 0.1%, paring this year's decline to 2.2%. Turkey's lira reversed a loss of as much as 0.7%, gaining 0.3% against the dollar, after Labor Department figures showed US employers added fewer jobs than expected in January.
"We probably are closer to a good opportunity to buy some of these things rather to join in the panic," O'Neill, the former chairman of Goldman Sachs Asset who coined the term BRIC for Brazil, Russia, India and China in 2001, said in a Bloomberg Radio interview on Feb 4 with Kathleen Hays. "Some places in the emerging world have got some real problems, but that to be described as some kind of emerging-market crisis is frankly kind of ridiculous."
Mr Mobius has found opportunities to buy in frontier markets, those that are too small or underdeveloped to be included in emerging-market indexes. He's been adding to companies in Africa, including Kenya and Nigeria, on expectations their growth will be less impacted by turbulence in larger economies.
Frontier nations account for six of the seven biggest gains among global equity indexes tracked by Bloomberg this year, led by a 17% jump in Dubai's DFM General Index.
The MSCI Frontier Markets Index rose 21% in 2013, outpacing the MSCI Emerging Markets Index by 26 percentage points, the widest annual gap since 2005. Corporate earnings in the 26 countries that make up the frontier index have risen to the highest level in five years. Profits in the MSCI emerging index, which is dominated by the BRIC countries, are still about 11% below their 2011 high.
The pace of economic growth in China is among the biggest questions in developing nations and the largest risks for markets, Bill Gross, who oversees the world's biggest bond fund at Pacific Investment Management Co, said on Feb 4. Riskier assets remain vulnerable, he said.
The US-domiciled Templeton Frontier Markets Fund has topped 98% of its peers in the last three years with a 4.6% annualised return, according to data compiled by Bloomberg. The fund, which managed about $1.5 billion of assets at the end of December, had its biggest holdings in Middle East and Africa, according to a fact sheet on the firm's website. Templeton's $13-billion Asian Growth Fund has outperformed 89% of peers in the past five years.
Mr Mobius said in a Jan 29 interview that inflows into developing nations would resume later this year because they have fast economic growth, low debt relative to gross domestic product and high foreign-exchange reserves.
"There are opportunities," Mobius said on Feb 7. "But there's no rush to get in." BLOOMBERG NEWS