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Investors might be wondering where markets are headed, given the wild swings in the past month or so. In late July, both the S & P 500 and the Nasdaq dived to a low not seen since 2022 before rebounding. Global markets — including the U.S. — sharply sold off in early August before bouncing back last week. Amid the volatility, veteran emerging markets investor Mark Mobius told CNBC’s ” Squawk Box Asia ” that he has been closely monitoring one metric in the United States: money supply growth. Mobius, who is founding partner of Mobius Capital Partners, pointed out that the U.S. M2 money supply peaked at $21.722 trillion in April 2022, but has declined to $21.025 trillion in June this year. That represents a decline of about 3.21%, he said Monday. M2 money supply refers to the estimated total money supply — including cash that people have — held as certain deposits or other savings vehicles. “This decline is historically significant because M2 had not seen such a drop in over 90 years,” said Mobius. Goldman Sachs explained in August last year that U.S. money supply was shrinking for the first time in 74 years because of changes in U.S. monetary policy and rising interest rates, and as the Fed shrank its $8 trillion balance sheet. “The main concern is that if the M2 money supply has declined since April 2022 and hasn’t kept pace with economic growth, there could be less capital available for the discretionary spending that has driven the current economic expansion and bull market on Wall Street,” he added. How to trade right now Against that backdrop, Mobius says that it’s time for investors to save up their cash so they can be ready to buy again, and research on companies with certain attributes. “Look for companies with little or no debt, moderate earnings growth, and high return on capital, and get ready to re-enter the market,” he said. He added that a 20% allocation to cash “would make sense at this point.” Though Mobius still sees opportunities in tech stocks, which he said have “nosedived” recently, those that have been overhyped have become overvalued, he said. “Companies with weak balance sheets, low or no earnings growth, and high debt, will be in deep trouble,” he said. In particular, Mobius said there will be a “much more competitive environment” in the chip industry — especially the high-end chips that companies such as Nvidia need. Semiconductor companies have benefited from the artificial intelligence push that started earlier last year. ” TSMC , United Micro and others are still going to be doing quite well. They’ll be earning more money, but the competition from China is going to be intense,” he said. “The good news for these companies is that total global demand is going up and will continue to rise as the AI demand increases. So I think the whole industry is going to do very well going forward,” he added. Apart from China, India also has the “resources” to develop the semiconductor industry, Mobius said. “They’ve got the software engineers, and they’ve got an incredible capacity to increase semiconductor production. So I think that’s where you have to really focus,” he said.
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