Emerging Markets to Benefit From Treasurys Selloff: Mobius
The selloff in Treasurys will drive more money into equities, with a third of that likely to go into emerging market stocks, Mark Mobius, Executive Chairman of Templeton Emerging Market Group told CNBC on Tuesday.
“People are now beginning to realize that they cannot be sitting on bonds that are paying one, two or even three percent, when inflation is running higher than that,” Mobius said, adding that investors would look increasingly at equities as an alternative.
“If you look at equities of course, the yields are much, much greater than the bonds.”
According to Mobius, the fact that emerging markets now make up 30 percent of global market capitalization, would lead to a proportional flow into those stocks.
The selloff in Treasurys has pushed yields on the 10-year to 2.36 percent, the highest level since October last year. Bond prices and yields move in opposite directions.
Mobius believes emerging markets will also benefit from further quantitative easing from the Federal Reserve, despite recent reports that Fed members were opposed to further easing as inflation and the U.S. economy pick up.
“The chairman of the Fed has made it very clear that until they see a sustained growth, they will continue to provide liquidity into the market and whether it is QE 3, 4 or even 5, that money supply will continue to increase,” said Mobius.
Within emerging markets, Mobius said he was especially bullish on Africa as it would benefit from investments from countries such as Brazil, China and India, which were looking to diversify their foreign exchange reserves.
“It is the real future in my view. When you look at the 10 fastest growing countries in the world, in the last 10 years, six of those were African countries. It tells you something,” said Mobius.
He added that the high price of oil would give the continent a boost as Middle Eastern countries would also look to park their cash hoards in Africa.
That rise in oil prices is one reason Mobius is bullish on Russia, which he named as his top emerging market economy.
“In the regular emerging markets not the frontier markets, (my top pick) would be Russia. Because the valuations are cheaper, the growth outlook is good for Russia. Oil prices have a big role to play.”