Until the 1990s, few retail investors paid much attention to emerging markets. That they now do is largely down to Mark Mobius. The “pied piper” of the sector, as South Africa’s Sunday Times dubbed him, gave its standing a hefty boost with his 1994 book The Investor’s Guide to Emerging Markets – and by producing average annual returns of 13% for his Templeton Emerging Markets Investment Trust since 1989. That’s more than double the 6% emerging markets as a whole have since returned.
Mobius’s thoughts on emerging markets now
The intrepid Singapore-based German-American cemented his reputation by snapping up cheap shares after the Asian crisis of 1997, when nobody else dared. The best time to buy is when “markets are crashing…that’s when you can find the bargains”, he says. So what’s his current take on developing markets?
“We’ve never had it so good”, he says on BusinessWeek.com. The strong structural growth story in emerging markets is more widespread than in the past now that governments are finally implementing policies to promote economic expansion and prosperity. Growth is easily outstripping that of the developed world; rising per-capita incomes have fuelled consumer booms, while higher commodity prices have also helped drive growth over the past few years.
Which markets are cheap?
The positive backdrop has sent emerging market stocks to a 171% gain over the past three years. With prices this high, Mobius, a value investor, would normally be moving into cash, but the “saving grace” of developing market stocks is that they’re still pretty cheap compared to the rest of the world, he told The Sunday Times. His analysis of potential picks has four stages: the stock’s value relative to its domestic and global sectors, its own history and its value in absolute terms.
Find out who owns the firm, he says: family or government-owned businesses can cause trouble. In Korea, for instance, the influence of powerful families saw local stocks traded at a discount, although now their influence has waned. But that has yet to be fully recognised by investors, making the market look cheap. That applies to Turkey in spades, reckons Mobius: the market is “bombed out” amid jitters over terrorist threats to the leisure and tourism industry and the shaky currency, making this a good time to buy. He points to mounting consumer confidence – witness the opening of a Harvey Nichols store in Istanbul – and high-quality companies as grounds for optimism. The manufacturer Beko Elektronik, for instance, has a stake in Germany’s Grundig, an illustration of the growing confidence of some emerging market companies.
Mobius also likes Russia (see Russia: not just an oil and gas story any more)and has bought more shares in Thailand following the coup; his only regret is that the market didn’t fall far enough. He likes the long-term outlook in India, but is struggling to find bargains because valuations are “fairly rich”, and remains keen on Brazil, which is given the largest regional weighting in his trust, accounting for 20% of the assets. South Korea is second with 15%. Mobius has been concentrating on the consumption story; recent picks include China Mobile (CHL, $35 in New York) and homebuilder Cheung Kong (0001.HK, HKD83).
The key worry for emerging markets is a rapid US-induced global slowdown since exports are a main component of growth. But South East Asia’s dependence on the US has diminished now that China and India are booming, while the prospect of an end to US rate hikes is a positive, says Mobius.