The US faces a double-dip coronavirus recession, according to veteran emerging markets investor Mark Mobius

Mark Mobius, founder of Mobius Capital Partners. REUTERS/Sukree Sukplang
  • Mark Mobius, founding partner of Mobius Capital Partners, thinks the economy will recover from the coronavirus toll but sees the potential for another round of pain.
  • In an interview with MarketWatch on Monday, Mobius said he suspects the stock market will witness a W-shaped recovery.
  • Mobius is “very optimistic” that the markets will bounce back in the long-term after creating “incredible bargains.”
  • He believes that ESG standards will come “roaring back” as a result of the coronavirus crisis.
  • Visit Business Insider’s homepage for more stories.

Renowned emerging markets investor Mark Mobius believes the US economy is set for a “W-shaped” recovery from the Covid-19 pandemic, with two dips, and two periods of recovery.

In an interview to MarketWatch via a Zoom conference call on Monday, Mobius said he suspects the stock market will witness a W-shaped recovery, also known as a double-dip recession.

A W-shaped economic cycle of recession is a two-stage resurgence when an economy passes through a recession followed by recovery and then immediately falls back into another recession. This is generally due to sharp declines in metrics such as employment, gross domestic product, industrial output, and other factors.

Mobius’ view, as per MarketWatch, is in contrast with investors who have argued that the economic downturn caused by global lockdowns will be short-lived and that unprecedented monetary and fiscal stimulus will foster a V-shaped bounce for equities and the global economy.

A V-shaped economic recession is characterised by a sharp sustained rebound after bottoming out for a short period.

Mobius said that while he believes those factors can set the stage for a bullish environment, investors will be unlikely to shrug off ugly economic news and inevitable earnings in the following quarters.

He said: “A lot of the damage that’s being done to balance sheets, to sales, to profitability, etc., has not really been realised.

“In other words, the realisation will come when the companies announce their earnings next year or the end of this year. I think as the news filters out, gradually, that people will have second thoughts.”

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Mobius is “very optimistic” that the markets will bounce back in the long-term after creating “incredible bargains,” Marketwatch reported.

In the coming months, Mobius believes it would be handy to keep some dry powder in the event of a renewed correction that could see markets retest the March lows.

His own purchases and investments have made “a little money” but he is reserving cash for any potential correction that may come, the report said.

He said emerging markets (EM) will suffer even more severely when the US and developed markets crash, with global investors quickly acting on pulling money out of EM assets as soon as a downturn is foreseen.

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Many EM countries, Mobius said, learnt their lesson during the Asian financial crisis of the late 1990s and built up foreign-exchange reserves.

The current market crisis has put environmental, social and governance (ESG) standards somewhat “in the back seat,” with investors focused elsewhere but that’s not likely to last, he believes.

“Once we get back more to normal, people are going to be asking: ‘Hey, why weren’t you prepared for something like this? Why didn’t you have the situation under control and then how did you take care of your staff and your customers?,” Mobius was quoted as saying.

“I believe the whole environmental issue is going to come roaring back after we’ve solved these immediate problems.”