Global stocks face 30% 'correction' - Mobius

Investment guru and executive chairman of Templeton Asset Management, Mark Mobius, said on Monday that global stocks will drop as much as 30 percent following their recovery from last year’s rout as companies take advantage of the rebound to sell more shares.In an interview in Kuala Lumpur, reported by news agency Bloomberg, Mobius said: ''When you have these rapid increases, almost without correction, you will definitely have a correction at some point, so we can expect a lot of volatility.''

''Increases of 70 percent will be followed by decreases of 20 to 30 percent,'' he added.

Bloomberg data shows the MSCI World Index climbing 54 percent from a 13-year low on March 9, boosting valuations as governments worldwide spent more than $2 trillion to end the global recession.

China’s Shanghai Composite Index meanwhile has surged 78 percent this year.

The rebound has in turn prompted a revival in share sales - China State Construction Engineering Corp. and Visa Inc.’s Brazilian affiliate VisaNet having raised about $11.9 billion in the world’s largest initial public offerings this year, said Bloomberg.

''The biggest risk for global stocks is the increase in initial share sales and bond issues,'' Mobius said.

Investors will be ''selling to take up new stocks, that will impact the prices,'' he added.

The so-called correction ''can happen anytime, probably this year,'' Mobius said. ''It may not be all at once, you may not see a decrease of 20 percent suddenly, it could be 10 percent here, and a rise of 5 percent then another 10 percent, you’ll see this kind of volatility in the markets.'' He added that he was referring to shares ''globally.''

Despite the 78 percent surge in Shanghai, Mobius, who says he plans to double Templeton’s emerging markets assets within two years, does not see it as a bubble ''because you don’t have the irrational exuberance so to speak that you would normally find in a bubble activity.''

The (Chinese) government’s policies to rein in bank lending are a ''good thing,'' he added.