Derivatives Major Risk to Financial System: Mark Mobius

Watch out for derivatives, Mark Mobius, executive chairman of the Templeton Emerging Markets Group, told CNBC Friday.

AP

"There is a risk that faces the entire financial system, and that has to do with derivatives," he said of financial instrument, such as options, whose value is based on another security.

"We believe in derivatives. We use derivatives. But it remains a very, very big risk to the system, because they’re so huge — $600 trillion, 10 times more than the total (gross domestic product) of the world," he said.

He did not mention MF Global specifically, but it was the firm's big bets on European sovereign debt that led to its collapse and has led one member of the U.S. Commodity Futures Trading Commission to call for an insurance fundfor derivatives to restore investor confidence.

Derivatives aside, Mobius continues to be bullish on emerging markets, saying they are growing at three times the rate of more developed nations.

"It's a very positive picture," he said. Emerging markets have lower debt to GDP ratios and "tremendous foreign reserves, more than all the developed countries put together."

As he did in an interview earlier this week, Mobius said Europe's debt crisis will be resolved in the middle of next year.

"I've always said this is going to take time," he told CNBC, but an agreement should come next year. "Now that the U.K. has taken itself out of the picture, [the European Union] will come to one faster."