By Daniel Bases
NEW YORK, March 11 (Reuters) - Veteran fund manager Mark Mobius sees a potential 20 percent rise in emerging market stocks in 2009 and views extreme investor pessimism as a signal to gradually start buying equities.
"The danger we face now is being too pessimistic," Mobius, the executive chairman of Templeton Asset Management, a division of San Mateo, California-based Franklin Templeton Investments, said in a telephone interview with Reuters.
"We are seeing that slight bottoming out, that we have to be cautious of because if we are caught with too much cash, specifically when we are looking at very good bargains, then we are going to be in trouble with our investors," he said.
Mobius manages roughly $20 billion in emerging market assets out of the firm's $377 billion assets under management.
Asked how high emerging market stocks might go by year-end: "If you really press me I would say 20 percent would not be unlikely, and the reason I would say that with some degree of confidence is that we have already come up."
MSCI's emerging markets stock index fell 54.48 percent in 2008 <.MSCIEF>. While the index is down 9.46 percent year-to-date, it has risen more than 15 percent from its four-year low in October.
The Templeton Developing Markets Trust
Cash levels for his portfolio fluctuate between the preferred level of zero and 7 percent he said. He characterizes them as "normal, or certainly not higher than normal."
During the 1997-1998 Asian financial crisis, cash levels in his funds reached 20 percent.
MARKET BOTTOM?
While market volatility may not be over, a market bottom could be in place, Mobius said when asked at what point in the next 12 months investors might claim they've cleared a hurdle.
"I'm saying that now. I'm feeling that now because of the incredible pessimism that you see everywhere. That usually is a pretty good sign that we are over the hump," he said.
"Almost universal pessimism is usually a very good time to be buying equities because equities lead the economy," by six months to a year he said.
Famous for his globe trotting and "on the ground" research, Mobius said of a recent trip to Latin America that while companies were preparing for the worst, customer orders were still coming in and "a lot of them" are maintaining steady investment programs.
"On the ground things look OK but with a slower pace. That is on the investment side. The valuations now are very very attractive, even if we do a big markdown on earnings," he said.
REGIONAL STRENGTHS
Latin America and Asia are the two favored regions with China and Brazil among the top country picks. Select countries such as Egypt and Turkey stand out among harder hit regions.
"Eastern Europe is pretty much a disaster."
He believes China's stimulus plan will help it achieve its 8 percent GDP growth target this year, helping pull up Asia which increasingly sells more of its goods to the world's third largest economy.
Brazil's diversified economy and growing consumerism make it attractive, he said.
The global financial crisis has had a heavy negative impact on emerging markets which rely on developed market economies to grow and buy up their natural resources and value added goods.
But Mobius believes global emerging markets will rebound faster than developed markets, forecasting an average of 3 percent growth this year. Developed markets are mired in recession.
"I'm confident because of the expanding money supply in the U.S. which will bring inflation in the U.S. and buying power. The knock-on effect will be money going into markets globally and of course emerging markets will get their fair share," Mobius said.
U.S. Federal Reserve data shows the supply of cash and deposits on hand grew a seasonally adjusted 15.1 percent in 2008.
"(Money) is not finding its way into the (U.S.) economy yet, but you better believe it will. That is a very bullish scenario for assets of any kind in my view," he said.
However he believes the nervousness in the global economy that has fueled a flight to safety trade and strengthened the U.S. dollar as investors buy liquid U.S. Treasuries has overvalued the greenback.
"Yes, in a number of instances, (the U.S. dollar) is over valued when I look at price parity," he said. (Reporting by Daniel Bases; editing by Carol Bishopric)