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According to Mark Mobius, the recent stock sell-off could be a warning for the future of the economy.
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The billionaire investor pointed to the risk of a recession in an interview with The Economic Times.
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According to Mobius, it is a good time for investors to keep approximately 20% of their portfolio in cash.
Billionaire investor Mark Mobius said the stock market’s sharp sell-off this week was not an exceptional event. The recent decline could signal more trouble ahead for the economy.
The CEO of Mobius Capital Partners on Monday pointed to the global stock market decline, with the S&P 500 posting its biggest one-day loss in two years. This came after surprisingly weak US economic data and the Bank of Japan raised interest rates, fueling selling pressure among investors.
Some commentators have argued that the sell-off was a healthy pullback in U.S. stocks, given how high valuations have risen. Yet it is more likely that the rout was caused by deeper problems in the economy and political climate, Mobius told The Economic Times in an interview on Thursday.
“It wasn’t technical,” Mobius said of Monday’s selloff, pointing to rising geopolitical tensions worldwide, and the upcoming U.S. presidential election. “All these things together create a lot of uncertainty. And then the situation in Japan started a chain reaction, and of course the U.S. market went down.”
Stocks could have more to fall, Mobius suggested. The carry trade unwind — which was highlighted this week as the culprit of the selloff — likely has more room to run, he predicted, echoing other Wall Street strategists.
Meanwhile, it looks like the economy will face “more problems in the future.” Fears of a recession rose this week after the labor market slowed more than expected in July.
Warnings of an economic slowdown can also be found in the money supply, which the Fed has reduced “drastically” in recent years in an effort to curb inflation, Mobius said.
“We are now feeling the effects of this reduction. If you look at the growth of the money supply in America, it is very low right now,” he said. “That means there is not a lot of money going into the market, into business, into the economy. So this is a real problem and a long-term problem. We have more problems in the US and that is going to affect the global situation unless the money supply is increased much more than it is now.”
For investors, it could be a good time to keep more money on the sidelines, Mobius said. Disruptions in the stock market are usually the signal “before the real economic effects become visible,” he added.
“I think it’s a good idea to have about 20% of your portfolio in cash, maybe even a little bit more, because opportunities will arise in the future and it’s a good idea to have some capital on hand, let’s put it that way,” he said.
Stock prices stabilized this week after Monday’s deep drop and sentiment on Wall Street remains generally optimistic, given solid economic growth and ambitious expectations for rate cuts from the Fed.
According to Bank of America, a full-blown bear market is unlikely as the market is not showing any technical signals that would point to a spike in stock prices.
Read the original article on Business Insider
