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Investors should rotate out of the U.S. markets into better-performing emerging markets, says veteran investor Mark Mobius, warning that corporate earnings in world's number one economy are poised to disappoint.
"[U.S.] earnings will not be as good as people expect simply because they have a lot of headwinds," Mobius, executive chairman of Templeton Emerging Markets Group, said in an interview with CNBC on Tuesday.
The first reason, he said, is that the U.S. recovery is still at a nascent stage. On top of this "government pressure on businesses has been very, very great under this administration."
"They hate the banks to begin with, so banks are not able to give business support that they really need. As a result, companies have been conserving cash and buying back shares. That doesn't do much for earnings, so expansion isn't really there except in the tech space," Mobius said.
While there are still opportunities in the U.S. market -- such as those with a global focus -- the case for shifting into emerging markets is nonetheless growing stronger, he said.
Gains in emerging market equities have far outpaced their U.S. counterparts this year. The MSCI Emerging Markets Index is up 8.5 percent year-to-date, trouncing the S&P 500's 2 percent rise.
Mobius, who is bullish on several Asian markets - including China, Indonesia, Thailand and Taiwan - says the region is well-placed to weather any volatility stemming from the U.S. Federal Reserve's impending rate hikes.
"A rate hike in the U.S. is not going to have that much impact on the rest of the world because the rest of the world expanding [its] monetary base," he said, citing the European Central Bank and Bank of Japan, which are providing global markets with abundant liquidity via quantitative easing programs.
Betting big on China
Within the Asian emerging markets sphere, China is "number one", says Mobius.
The notoriously volatile Chinese market has risen dramatically since the start of 2015, up over 30 percent year to date. The rally has spilled over into H-shares, or mainland companies listed in Hong Kong, which have surged 20 percent over the same period.
"China is number one because of the variety and choices we have particularly now with the connect program," he said, referring to the Shanghai-Hong Kong connect scheme.
The scheme, launched late last year, allows Hong Kong and mainland investors to invest in each others markets up to a daily quota.
"It was only recently we were able to get permission to get into the program. That means a whole new era for us because all of these A-shares are open to us and many of them are very attractively priced," Mobius added.
Take corrections in stride
Fears of an equities selloff have been building after China's securities regulator last week issued a strong warning about the country's spiraling stock market and tightened rules on margin lending.
"I think the Party's realized that it's becoming a little bit like a casino for some people, and they want to contain it. But they won't want to stop it, because part of their plan, I believe, is to put more money in the hands of the public," he said.
In any case, Mobius says any corrections in the China market should be seen as a buying opportunity, adding that the bull market is not ending any time soon.
"We're having corrections everyday as you know. The bottom line is this: we're in a bull market, so we must not forget that," he said. "A correction of 20 percent is expected...take these corrections in stride, and take the opportunity to buy."