By Weiyi Lim
Dec. 11 (Bloomberg) — Mark Mobius says the bull market in Chinese stocks is just getting started and he’s using the biggest price swings in five years to boost holdings.
“We are buying more in China because we think this is the beginning of a longer-term bull run,” Mobius, who oversees about $40 billion as the executive chairman of Templeton Emerging Markets Group, said in a phone interview yesterday from Thailand.
The 78-year-old money manager, who’s been investing in emerging markets for more than four decades, is stepping up his wager on China after correctly predicting four months ago that the nation’s stock rally had further to run amid low valuations and government efforts to open-up state-dominated industries. The Shanghai Composite Index’s 51 percent jump from a four-year low in June 2013 is still less than half the average 122 percent gain during 26 bull markets since 1990.
China’s rally has accelerated during the past month as the central bank unexpectedly cut interest rates and mainland investors opened new stock accounts at the fastest pace in five years. While the Shanghai gauge posted its biggest one-day tumble since 2009 on Dec. 9, Mobius says increased volatility is creating opportunities to buy mispriced shares.
The Shanghai Composite climbed 19 percent in the past month through yesterday, the second-biggest gain among 93 equity indexes worldwide tracked by Bloomberg. The gauge surpassed 3,000 for the first time in three years on Dec. 8, while a measure of 10-day price swings reached the highest level since 2009 yesterday.
Across Board
The Shanghai gauge dropped 0.5 percent to 2,925.74 today, following a selloff in U.S. equities overnight.
Mobius said he’s been buying Chinese stocks “across the board,” including oil-related companies, on expectations that crude prices will recover from five-year lows. PetroChina Co., the nation’s biggest energy company, has climbed 21 percent in Shanghai trading during the past month.
Trading in mainland equities surged to all-time highs this week as investors weighed the sustainability of gains that have sent valuations to the highest level in three years. The rally is “irrational,” Ken Peng, a strategist at Citigroup Inc.’s private bank in Hong Kong, said on Dec. 4. Andy Xie, a former World Bank economist, called the advance a “bubble” driven by leveraged traders.
More Exposed
The People’s Daily, which is published by the propaganda department of the ruling Communist Party, joined the official Xinhua News Agency and the Securities Times with articles on Dec. 9 highlighting risks in stocks. They followed a similar warning from the nation’s securities regulator at the end of last week.
While Chinese shares will experience “corrections along the way,” they won’t enter a bear market any time soon, said Mobius, whose $13 billion Templeton Asian Growth Fund has returned about 8.5 percent this year.
Such optimism puts Mobius in a camp with Morgan Stanley’s Hong Kong-based strategist Jonathan Garner, who said on Dec. 2 there’s potential for an “ultra-bull” rally where share prices double in 18 months. The Shanghai Composite is poised to rally to 3,500, or 19 percent above the last close, Shenyin & Wanguo Securities Co. wrote in a report yesterday.
“Generally speaking, these things last quite a long time,” said Mobius. “We are getting more and more exposed in China.”
–With assistance from Phani Varahabhotla in Hong Kong.
