Mobius: The worst is over, I'm hunting value in China

Mark Mobius
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Mark Mobius

The violent pullback in Chinese equities has nearly run its course, according to emerging markets investment guru Mark Mobius, who is on the lookout for value in the market.

"I think we are probably getting close to a capitulation point in China," Mobius, executive chairman at Templeton Emerging Markets Group, wrote in a blog post on July 9. The term "capitulation" refers to the point when sentiment has gone so far in one direction that a turn in the opposite direction, be it higher or lower, is a certainty.

"We should see at least a short-term bounce soon, and many investors who didn't get out before may use that move to do so. Then, we would expect to likely see sideways action until the market can hopefully recover, provided valuations are good," he said.

The Shanghai Composite opened down 0.8 percent on Friday, but quickly reversed course to trade up over 2 percent. This comes after the the index staged its biggest one-day percentage gain since 2009 on Thursday, surging 5.8 percent, following yet another round of measures by Chinese authorities to reverse the downturn in the market. The benchmark index, however, remains around 25 percent below its June 12 peak of 5,166.35.

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Mobius, who uses a bottom-up, long-term and value-oriented investment philosophy, is closely monitoring stocks for an attractive entry point.

"We believe that point is close with some stocks, but we probably haven't hit the bottom yet," he said.

"The good news is that, based on market studies we've done in the past, these types of bear markets (and I would deem this a bear market) tend to be short in duration; they don't last too long, and when the recovery comes, it tends to be bigger in percentage terms," he added.

Are things looking up in China, Greece?
Are things looking up in China, Greece?   

The month-long correction in equities, which Mobius calls "healthy", is essentially a consequence of "too much euphoria."

He believes the sell-down in mainland stocks may have not been as aggressive if the government hadn't stepped in with a muddled medley of measures.

"In my view, the government probably should have allowed the market's early decline to run its course without additional interference that may have accelerated losses ," he said.

Looking at the big picture

While the world's second largest economy is shifting onto a slower growth trajectory, the "China story" is still intact, said Mobius

"China is still growing at a good pace, and we believe it's an important global market that we want to have exposure to for the long term," he said. "We know that China has slowed from the 10%+ growth rates it has had in the past. It's still a very big, fast-growing economy, and we believe in the merits of investing in equities in China. If we can do so at a lower price, so much the better."

China's economy grew 7.4 percent in 2014, its slowest pace in 24 years, and appears to be losing more momentum this year. Nevertheless, a growth rate of 7 percent or so still makes it the envy of much of the world.

-CNBC's Jeff Cox contributed to this report