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April 20, 2020, 4:42 p.m. EDT

Stock market could retest lows once investors see coronavirus toll on earnings, says Mark Mobius

Emerging-markets pioneer says ESG principles will return to spotlight as result of coronavirus crisis

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By William Watts, MarketWatch


Bloomberg
Mark Mobius

Mark Mobius, the emerging-markets investing pioneer, is confident the world economy will bounce back from the COVID-19 pandemic and offer investors a round of bargains—but sees the potential for another round of pain.

In an interview via a Zoom conference call from his hotel room in Durban, South Africa, where the co-founder of Mobius Capital Partners has been stuck for two weeks thanks to travel restrictions, Mobius said he suspects the stock market will see a W-shaped recovery. That means the rebound off the March lows will likely be followed by a retest of those levels before finally proceeding back to the previous highs and beyond.

That is in contrast with investors who have argued that the severe economic pain from lockdowns put in place to contain the pandemic will be short-lived and that the historic monetary and fiscal stimulus being pumped into economies around the world will foster a V-shaped bounce for both the global economy and equities.

Mobius said he thinks those factors will eventually set the stage for a “very bullish environment,” but that investors are unlikely to shrug off ugly economic news and earnings that will inevitably be seen in coming quarters.

“So what I’m saying is that a lot of the damage that’s being done to balance sheets, to sales, to profitability, etc., has not really been realized,” Mobius said. “In other words, the realization will come when the companies announce their earnings next year or the end of this year. I think as the news filters out, gradually, that people will have second thoughts.”

Over the long term, Mobius emphasized that he is “very optimistic” markets will bounce back after creating “incredible bargains.”

Dry powder

But it does make sense to keep some dry powder on hand in the event of a renewed correction that could see markets at least retest the March lows in coming months, he said.

Mobius said he has been making purchases for his own account and for the fund and that those investments have “made a little money” but that he’s keeping cash in reserve for a another correction that may come.

The S&P 500 /zigman2/quotes/210599714/realtime SPX +1.17%  rallied 15.5% over the past two weeks through Friday, its biggest such rise since 1974. The U.S. large-cap benchmark fell nearly 34% from its Feb. 19 closing high to its March 23 low. It is risen 28.5% from its nadir.

Stocks fell Monday, with the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.87%  ending nearly 600 points lower, down 2.4%, while the S&P 500 declined 1.8%

The MSCI Emerging Markets Index /zigman2/quotes/210598082/delayed XX:891800 -0.87% remains down more than 19% for the year to date, while the S&P 500 has trimmed its year-to-date loss to 11%.

It is a given that emerging markets will suffer even more severely when the U.S. and developed markets crash, Mobius said, with global investors quick to pull money out of EM assets as soon as the fear of a downturn appears.

Past lessons

But the good news, is that many emerging-market countries learned their lesson during the Asian financial crisis in the late 1990s, building up foreign-exchange reserves, he said.

/zigman2/quotes/210599714/realtime
US : S&P US
4,591.67
+53.24 +1.17%
Volume: 2.58B
Dec. 6, 2021 5:09p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
35,227.03
+646.95 +1.87%
Volume: 418.75M
Dec. 6, 2021 5:09p
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/zigman2/quotes/210598082/delayed
XX : MSCI Global
1,213.96
-10.68 -0.87%
Volume: 0.00
Dec. 6, 2021 5:06p
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