Famed investment expert Mark Mobius is warning of an impending large-scale stock market correction.
Mobius believes that a potential stock market crash anywhere between 30% to 40% could be in the offing.
“I’m much more cautious. There could be a substantial correction in the markets … these short-term corrections can be quite dramatic,” Mobius said.
According to former Templeton Funds manager, a 30% to 40% stock market adjustment is “not unreasonable.”
Nevertheless, Mobius did not predict when such a massive correction might happen.
The investment titan believes, however, that a significant correction will affect Western, developing and emerging stock markets — giving stock investors nowhere to hide.
“Over the long term emerging markets will do very, very well. The short-term corrections can be quite dramatic,” said Mobius.
Mobius stressed that he is not predicting that a 40% stock market correction will happen. He is only warning that such an event is possible.
“I’m not predicting that, I’m just saying we’ve got to be ready for that,” said Mobius.
Mobius went on, stating that he believes that interest rate adjustments by the Federal Reserve could spark the correction.
Extremely low interest rates have fed a nine-year-long bull market in stocks. As interest rates rise, investors could choose to reinvest into bonds.
An exit from stocks could be orderly, of course. But it might also create a panic and, thus, a stiff correction or crash.
“The catalyst I believe will come from continuing increases in interest rates,” said Mobius.
“The (Federal Reserve) is definitely moving in that direction. When the Fed moves, everybody else has got to move in that direction,” Mobius continued.
While Mobius points to Federal Reserve interest rate hikes, he also concedes that “any event could also be a trigger.”
Triggering events
Aside from the Federal Reserve, Mobius believes other factors could trigger a 40% stock market correction.
Mobius indicates that the long-running United States bull market, initiated in 2009 after the 2008 global finance crisis, could be a reason for stocks to correct.
According to data from Reuters, the S&P 500 has risen by more than 289% since March 2009.
In the end, Mobius is saying that what goes up eventually must come down.
“Most importantly we’ve seen this long bull market that needs a correction,” he said.
Geopolitical schisms and flare-ups could also be a cause for stock investors to be cautious, tipping them toward a selloff that could end up igniting a bear market run.
The investment industry legend made theses comments while announcing the launch of his new investment management firm.
Mobius Capital Partners will have an operational focus to create more awareness about investing potential in the developing world, especially in frontier markets and emerging markets.
When Mark Mobius talks, people listen. Mobius secured his reputation after a 30-year run at Franklin Templeton Investments.
However, not all financial experts are in accordance with Mobius’ recent remarks.
Sam Stovall, chief investment strategist at the Center for Financial Research and Analysis, foresees a more modest stock market correction.
Stovall expects the S&P 500 to fall by 3% before hitting a bottom.
“While we could go further lower in terms of this correction, I don’t think we’re going to be falling into a new bear market,” said Stovall.
