Dubai’s attempt to reschedule debt may spur a “correction” in emerging markets, according to Mark Mobius, while the global slump in equities shows government spending alone won’t protect financial markets, Arnab Das of Roubini Global Economics said.
Mobius, who oversees about $25 billion of developing-nation assets as chairman of Templeton Asset Management, said a 20% drop for shares is “quite possible” . Stock volatility and risk aversion may jump as countries and companies default on loans, according to Das, the head of market research and strategy at RGE, the advisory firm founded by Nouriel Roubini.
Stocks retreated for a second day on Friday, government bonds jumped and credit-default swaps climbed after Dubai World, the government investment company burdened by $59 billion of liabilities , sought to delay repayment of debt.
The MSCI Emerging Markets Index has slumped 4.7% in the past two days after more than doubling from its 2009 low in March.
“This may be the trigger to allow for the market to take a rest and pull back,” Mobius said in a TV interview by phone from Hanoi. “I felt that there would be a significant correction in what is an ongoing bull market,” he said. “If Dubai has to default, that could start a wave of defaults in other areas.”
MSCI’s gauge of emerging nations has advanced 65% this year, more than double the gain in developed markets, as a rally in commodities buoyed stocks from Brazil to Russia.
Source: Economic Times
