Templeton Asset Management Executive Chairman Mark Mobius says that emerging market stocks are due for a significant correction in the short term, but will likely soar to new highs by the end of next year.

Mobius told Dow Jones Newswires that with companies’ earnings remaining weak, the recent rise in stock prices means “valuations are now relatively lofty”, and price/earnings ratios at 20 to 30 and a tenuous economic recovery will lead to investors taking profits, the Wall Street Journal reports. He sees a 20% to 30% correction from current levels as “inevitable” and happening “at any time”.

But overall, he says, “I am bullish about the prospects (for emerging markets). Next year will be a lot better (than this year). Corporate earnings will improve and coupled with the stimulus packages, there will be a lot more money in the market.” It is likely emerging markets will pass their mid-2008 highs by 30% or so before the end of 2010, he says.

Templeton is making markets like China and Brazil priorities, and it is also high on new emerging economies in central Asia, the Middle East and Africa. Equities in another high-growth market, India, “are looking a little expensive right now,” however.

Mobius said the gains in emerging markets will be driven by economies bouncing back, and “a natural development that growth rates will be higher in the emerging markets (compared with developed markets).”

Mobius also said a second U.S. stimulus package would be “positive” for equity markets.

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