Mark Mobius: The China bull market is back

From Bloomberg:

China stocks will extend their rally after entering a bull market yesterday as investors increase purchases in a market that lagged behind gains in Asia, according to Templeton Asset Management Ltd.'s Mark Mobius.

"It's going to continue, yes, it's sustainable," Mobius, who oversees about $40 billion as chairman of Templeton's emerging markets group, said in an interview in Kuala Lumpur. "People will say 'hey, Malaysia's gone up, Indonesia's gone up, now let's go to China,' it'll get rotation."

The Shanghai Composite Index is Asia's worst performer this year, with a 13 percent decline as the government boosted measures to slow the economy and cool property prices. At the same time, Indonesia's Jakarta Composite Index has rallied 40 percent, Thailand's SET Index has jumped 33 percent and Malaysia's FTSE Bursa Malaysia KLCI Index has risen 17 percent.

The Chinese gauge has rebounded 20 percent from the 2010 low on July 5, the threshold some investors consider the beginning of a bull market, on signs the nation's economic growth will remain resilient and the yuan will continue to strengthen.

"China now is going to start picking up because the rest of the world is picking up," Mobius said. "That's what will happen, because China's been behind."

China's manufacturing expanded at the fastest pace in four months in September, while industrial output rose 13.9 percent in August, exceeding economists' estimates. Citing the economy's outlook, Moody's Investors Service on Oct. 8 put the nation's debt rating on review for a possible upgrade. The yuan has gained 2.3 percent this year.

Fund Flows

Mobius told reporters in Kuala Lumpur yesterday that the flow of funds into Asia is "sustainable, but with corrections along the way."

"The valuations are not excessive. We're not seeing the kind of things we saw during the dot-com boom, where nobody really cared about earnings, they cared about the spending," he said. "It's sustainable, because countries growing at 10 percent means that earnings for companies are growing at least that much, probably double that."

Overseas investors pumped the most cash into emerging- market equities since late 2007 in October and Asia bond funds attracted more capital on further signs growth in developed nations is slowing, according to EPFR Global on Oct. 8.

The equity funds received net inflows of more than $6 billion in the week ended Oct. 6, the biggest amount in 33 months, the Cambridge, Massachusetts-based research company said in an e-mailed statement. Investors added $1.1 billion to funds dedicated to emerging-market debt, it said.

Inflows are breaking records since EPFR started tracking the data in 1995 on speculation central banks will join Japan's monetary easing, releasing more capital that can be invested in higher-yielding assets.

View the original article here