By Mark Mobius

The global markets have experienced a late summer swoon, blamed on factors including concerns about slowing growth in China and the impact of a potential increase in US interest rates this autumn. Whatever the reason, we think it is important to put these types of market corrections in context, remain calm and look for potential opportunities.

We don’t know for sure whether the market rout has ended, or has further to go. We would note that many of the world’s stock markets have not seen a significant correction in many years. Individual markets like Brazil or Russia are down more than 30% this year, but many others have not experienced losses that we would classify as being in a bear market. General pessimism and uncertainty prevails in markets right now, so it is possible some markets could fall further before we see stabilization. Nevertheless, over the last 20 years or so, our team has witnessed a general increase in volatility in all markets (equity, commodities and fixed income) brought on, we think, by increased use of derivatives and the strong influence of changing government policies spread by an exponential increase in news flow on the Internet.

We do know valuations in a number of markets and sectors were getting quite expensive, so this market downturn isn’t all that surprising to us. Most notably in China, it was clear to us that the domestic A-Share market had seen intense speculation that had taken over and pushed that market up to unsustainable highs in record time on the back of government encouragement. With the inevitable denouement taking place, Chinese investors are now complaining about their market losses and the government has been active in trying to revive the market’s fortune.

China’s central bank has cut interest rates this week (the fifth rate cut since November), and has loosened reserve requirements. There isn’t a whole lot central bankers can do when the money that is already in the system isn’t being put back into the market; not only because confidence has been lost but also because of various prudential requirements, the banks have not increased lending. China’s central bank hopes its latest measures will enable the release of money from the banking system.

My main message during times like these? Don’t be afraid to buy when everyone else is selling. But remember also that the best time to buy is when all the sellers have finished their selling—which may be easier said than done!

Bulls and Bears and Opportunities

While market declines can be painful for investors, we like to view them as periods of opportunity; we look to pick up bargains in anticipation of an eventual market recovery.

I have studied stock markets in emerging countries and found that their bull markets have generally lasted longer than their bear markets, and the bull markets have tended to go up more in percentage terms than bear markets went down.¹ Of course, how emerging markets behaved in the past does not necessarily predict how they will behave in the future, but I believe one must take a long-term view and average your investments over a period of time—attempting to time the market can be a frustrating exercise. It can take fortitude to invest when the outlook is bleak and others are selling, but that’s often when the best values can be uncovered—if you do your homework.