Recently, the Gulf News (UAE) spoke to Mark Mobius, President of the Templeton Emerging Markets Fund, about global stock markets. Here’s what the legendary emerging markets investor had to say:

Market Outlook

GN: How long in your opinion will the bear market last?
MOBIUS: I believe the bear market that started in August 2007 is now in recovery phase but will not be immediately followed by a strong bull market.:

GN: Is it a good time to invest in equities? If yes, then why; if not, then when will the time come?
MOBIUS: Timing the markets is a very unforgiving exercise and I wouldn’t recommend it to anyone. We at Templeton simply continue to try to buy stocks that are cheap at a given moment. The mere fact that we only have no more than five per cent in cash in most of our funds indicates that we are optimistic and that we are prepared for a market bounce.

Emerging markets valuations have also come up quite significantly in the past few years, but so have earnings, so emerging market equities continue to offer good price-earnings characteristics…

Emerging markets this year are expected to experience an average gross domestic product (GDP) growth of seven per cent, while developed markets are expected to grow at an average of a little more than two per cent…

I would suggest that investors take a long-term view to investing, carefully evaluate their options and of course, diversify their holdings. History has shown us that the best time to buy is when everyone is despondent and selling.

Where To Buy

GN: In which countries, in your opinion, do equities have the biggest growth potential and why (are people talking a lot about Brazil recently)?
MOBIUS: Some of the fastest growing nations in the world today are the BRIC (Brazil, Russia, India and China) countries. The Chinese and Indian consumers are the world’s new consumers and they along with consumers in Brazil, Russia, Turkey, the UAE, Egypt, Mexico, Poland and many other emerging markets are becoming an important force in world consumption. Despite the current political volatility, we have liked Turkish investments for some time, because we are able to find there plenty of well-run companies operating in a growing domestic market. Returns on capital are high, valuations are low, and the country’s economy is moving closer to the European Union.

In emerging markets in general, we will continue to focus on energy, telecom, transportation and banks.

Where To Avoid

GN: Which countries should be avoided at present as far as investment in equities is concerned?
MOBIUS: …we have minimal exposures to markets such as the Philippines and Chile due to size and liquidity issues. In the case of the Philippines, the country’s high fiscal deficit and poor corporate governance practices also raise concerns. We believe that acceleration in the implementation of financial, economic and structural reforms is vital to tackle the country’s problems. The government also needs to clean up the country’s widespread corruption and nepotism problems. We have just returned from a trip to the Philippines and found a much improved investment environment. However much still needs to be done. We exited Venezuela as soon as Chavez came to power since we saw the potential risks.

Natural Resource Sector

GN: Do you think the present bull market in natural resources has a chance to last and if yes, which natural resources will increase the fastest? Do funds managed by you take advantage of the natural resources bull market and if yes, then which specifically and how?
MOBIUS: Coming back to commodities, our funds have lots of exposure to commodities-linked companies that are benefiting from high prices and high global demand, including Vale do Rio Doce in Brazil and Gazprom in Russia. We also have exposure to the rapid rise in Chinese oil demand, through Petrochina.

In general, Russia is a big commodity play. The big run-up in the market prices of some of our Russian oil and gas holdings has automatically resulted in Russia accounting for a larger share of some of our portfolios than before. We are conscious that the Russian stock index is exposed to a correction in energy prices, but the Russian commodity-related stocks in our portfolio will continue to make good profits and record substantial margins, even allowing for price corrections.

In general, we remain optimistic about the energy sector because of geopolitical and short-term constraint reasons. While we do not project the average crude oil prices to maintain their recent lofty levels, demand growth still looks strong and makes the tight supply and demand situation even tighter.

Source:

“Where to make your stock market moves?”
Gulf News (UAE), June 14, 2008

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