Emerging markets building up strength

Bloomberg

Mobius reiterated that emerging markets are "building a base" for the next rally. Chrysler’s bankruptcy filing and other "short-term risks" may hold back the rally, while speculators may bet stocks will fall, he said.

"We are at the base building period for the next bull market," Mobius, who helps oversee $20 billion in emerging-market assets at Templeton, said Sunday in an interview in Bali, Indonesia, where he’s attending a conference. "What I see happening is perhaps this continuing till the end of the year, and then a break out."

Developing markets made up all 10 of the best-performing stock indexes in 2009, led by Peru and China. The MSCI Emerging Markets Index added 2.7 percent to 680.75 as of 1:38 p.m. yesterday in Singapore, a seven-month high, extending the gain this year to 20 percent. The MSCI World Index retreated 2.3 percent in 2009.

Emerging markets perform better than advanced ones
Since Mobius said on March 23 that the base for the rally is being built, the emerging-market gauge rose 23 percent, outpacing the global measure’s 14 percent advance.

Government stimulus programs from the U.S. to China have prompted Federal Reserve Chairman Ben S. Bernanke to say there’s evidence of "green shoots" in some markets. Reports on consumer confidence and manufacturing in the world’s largest economy last week spurred optimism the worst of the recession may be over.

The International Monetary Fund said last month the world economy may shrink 1.3 percent this year, compared with its January prediction of 0.5 percent growth.

Short sellers are increasing bets against developing-nation stocks by the most since March 2007, a signal the biggest rally in 16 years may fizzle as profits plunge.

Short interest in the iShares MSCI Emerging Markets Index fund, which tracks equities in 23 developing nations, climbed 51 percent in March, the biggest jump in two years, according to New York Stock Exchange data. The growth in short sales, where investors borrow stock and sell it on the expectation prices will fall, marks a shift from the last three rebounds in emerging-market stocks. In those cases, traders closed out their bets.