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Making the Most of the Coming Market Meltdown

Executive chairman of Templeton Asset Management’s emerging markets group, Mark Mobius, who oversees more than $50 billion, firmly believes another financial crisis is “inevitable.”

Sounds ominous, right? Mobius doesn’t think so. He explained that such a predicted problem would turn out as “no big disaster,” rather an opportunity to buy cheap stocks once again.

Mobius, who spoke on the subject at the Foreign Correspondents’ Club of Japan in Tokyo, is of the opinion that the original causes for concern, created three years ago, have yet to be solved. The proliferation of unregulated derivatives tied to U.S. home loans failed to perform, setting in motion the collapse of Lehman Brothers Holding Inc. in September 2008.

Some experts said the Franklin Templeton emerging market veteran’s remarks should be taken with a grain of salt, uncertain that another Lehman Brothers-style financial collapse is imminent. For instance, Commerzbank economist Peter Dixon believes “the situation now is very different to what it was in 2008. Banks are far more careful with derivatives, they are not as highly leveraged and they are more open about things that are not on their balance sheets.”

Yet, Mobius, who runs the $18.2 billion growth fund presently puts the total global value of derivates exceeding global gross domestic product by a factor of 10. Banks that were previously “too big to fail” prior to the financial crisis have continued to expand in size and scope, generating damaging global bank balance sheets. Banks are anticipated to increase by 40 percent over the next decade and a half according to Bloomberg data. All of these factors combined could potentially trigger a surge in volatility, making an equity market crisis inescapable.

For now, the chairman of Templeton is unsure as to the exact time the crisis will occur. In preparation, he currently maintains a portfolio that includes stocks “we think can survive such a crisis,” including consumer stocks and commodities, which have received a great deal of attention recently.

In addition, Mobius is precautious with respect to China, emphasizing shares of oil companies and “anything related to [the] consumer,” including automobile manufacturers and department stores, where he sees the most growth. He added that Africa has “incredible” investment potential, setting stakes in Nigerian banks.

“Where markets are crashing, that’s when we’re going to be able to invest and do a good job.”

According to Mobius, with a troublesome situation that goes uncorrected, it is only a matter of time before the chips come tumbling down once again. Once volumes of bets in diverse directions are coupled with heavy volatility, equity market crises are to be expected.

“With every crisis comes great opportunity,” he said.

By. Gigi Sukin for Top Stock Portfolios


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  • Anonymous on June 13 2011 said:
    One thing to remember here: great opportunities for financial investors do not necessarily mean great opportunities for investors in physical assets.I also wonder how things will turn out for financial investors in the kind of situation existing at the end of summer, 2008. I think that I will make an effort to forget the advice of Mr Mobius before lunch today.

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