WHO does not know the “King of Emerging Markets” Mark Mobius, who spends over 200 days a year shuttling from one emerging market to another – all in the name of finding undervalued companies?
Mobius, who is the executive chairman of Templeton Emerging Markets Group, manages some US$46bil (RM147.2bil) in over 65 closed and open-ended emerging-market funds.
Having invested in emerging markets for more than 40 years, Mobius has single-handedly widened the appeal of emerging-market investing. He centres his investment decisions on transparency, investor protection and good corporate governance.
Of his many accolades, Asiamoney magazine listed Mobius as one of the “Top 100 Most Powerful and Influential People” in 2006. He was also named one of Bloomberg Markets magazine’s “50 Most Influential People” in 2011.
Is Mobius’ conviction on emerging markets just as strong as before?
Definitely. Mobius still believes that emerging markets are set to dominate the world economy in the coming decades.
This year, emerging markets are expected to grow by 5%, much faster than the 2% growth expected in developed markets.
Emerging markets such as China, Brazil, Russia and India are also becoming among the largest economies in the world.
“We have already seen poverty relief on a scale unsurpassed in history, as the incomes of hundreds of millions of people have risen over the past two decades. The reform outlook in emerging markets is at its brightest in years,” he says.
Mobius cites China’s Government under President Xi Jinping, which has signalled its intention to embark on an extensive reform programme, India’s new pro-business Government led by Prime Minister Narendra Modi, which is expected to launch extensive reforms, and Indonesia, where president-elect Joko Widodo has announced ambitious plans to cut subsidies and increase investment. “We believe the coming decades will be characterised by an ever-growing level of per capita income and more market-oriented policies,” he notes.
Mobius would classify emerging markets as overall being in a “recovery phase” after 2013’s underperformance, barring no further unexpected shocks.
He says that as an investor in emerging markets, it is important to look at the big picture. During the last 10 years, there have been only three years when emerging markets underperformed developed markets, 2013 being one of them.
“In the first half of 2014, emerging markets have generally outperformed developed markets, and I would say that we’re in a sweet spot in terms of emerging markets’ recovery. And I see no reason why this outperformance cannot continue in 2015 and 2016,” he says.
While Templeton continues to invest on the basis of individual companies, its largest exposures include China, Thailand, India, Brazil, Indonesia, Turkey and Russia.
Mobius says he was happy to find increased investor interest in emerging markets recently, especially after the bout of volatility late last year and early this year in the emerging markets.
“People seem to be starting to diversify their assets a bit more. This is important, especially since emerging markets currently account for more than 30% of total global market capitalisation,” he says.
Mobius says Malaysia is benefitting from developments in the Asean region, especially with growing trade.
“Malaysia will also benefit from the growth that we are seeing in Indonesia. And of course, being adjacent to Singapore is another big benefit. Moreover, we think that from an industrial and agricultural point of view, because of the big oil palm plantations, you are going to find very good opportunities,” says Mobius.
He thinks Malaysia has made great strides recently by increasing Government transparency. In addition, Malaysia’s Government has been taking measures to reduce subsidies, especially in sugar and fuel.
“We think this is a sound policy initiative that could pay off for Malaysia in the long run, because budget deficits could be minimised and the economy could be put on a more realistic and firmer footing. We think if Malaysia’s politicians can take the lead in this regard, it could be positive for the economy in the long term,” he says.
Mobius continues to be a bottom-up stock picker, meaning he assesses the potential risks and returns related to each and every company he invests in.
In looking at companies, he likes to place emphasis on companies that he believes have the highest potential, and take a long-term view and search for stocks that are undervalued relative to their intrinsic values.
“We focus on companies that are well-managed and have attractive valuations, sound business models, strong cash flows, good dividend payouts and competitive advantages. Both quantitative and qualitative factors are just as important,” he says.
While Mobius does not intentionally look at sectors per se, the two major themes in his investments are evident – consumers and commodities.
“In the consumer segment, the rising per capita incomes mean that the demand for consumer products is increasing fast. The deceleration of population growth combined with high economic growth means that per capita income is rising and demand for consumer products is increasing,” says Mobius.
He says this has led to a positive earnings growth outlook for consumer-related companies. In the area of consumer products, Mobius also looks at automobiles and retailing, and consumer services such as finance, banking and telecommunications.
On the next big thing, Mobius says at the way things are going, smartphone users could be doing a lot more than what they are currently doing.
“Things like consulting a doctor, receiving a diagnosis, immediate quotations for healthcare procedures, for example, would become a lot quicker,” he says.
Mobius says commodities offer another way to access the high-growth trajectory of nations like China and India and take advantage of greater demand.
“We are looking for companies that are strong producers of commodities such as oil, iron ore, aluminum, copper, nickel and platinum.
While infrastructure development in emerging markets has led to continued demand for hard commodities, demand for soft commodities such as sugar, cocoa and select grains has also increased. Resource-rich countries in Latin America, too, are benefiting from increasing global demand,” he says.
While Mobius acknowledges that commodity stocks have been hurt by the decline in commodity prices in recent times, many companies remain profitable.
Furthermore, Mobius does not foresee commodity prices going down to extremely low levels in the near future. He believes commodities will eventually trend upwards over the long term.
“This is, in part, because of continued demand from emerging markets (despite slower economic growth) and relatively inelastic supply. With this, he believes commodity companies should remain profitable and constitute attractive investment opportunities,” he says.
On quantitative easing (QE), Mobius says its tapering is a signal that the US Federal Reserve sees the US economy as being on a sustainable growth path. Furthermore, recovery has also begun in Europe and Japan.
Mobius notes that the improving condition of the developed markets has already begun to be reflected in export data from a number of emerging markets.
“The tapering itself is minor in extent compared with the huge expansion of central bank liquidity seen in recent years, which has yet to translate significantly into real economic activity. Currency market developments appear to be disciplining Governments that have been adopting excessively aggressive or populist economic policies. Some of the markets that were affected in 2013 have, in recent months, seen renewed investment inflows, as investors recognise their attractive valuations,” says Mobius. He adds that the amount of liquidity available in banks around the world is now very high, with loan-to-deposit ratios low and a large flow of central bank cash being held in banks. This money can flow into stock markets in the future.
Mobius says the impact of shale gas discovery will change the dynamics of the global economy as well as oil prices, without a doubt.
“However, it should be noted that in addition to the US, emerging markets such as Poland, Romania, Mexico, Argentina and China also have shale gas reserves. Thus, shale gas production could benefit a number of economies globally,” he says.
With the US becoming a net oil exporter over the next few years, Mobius, however, does not foresee any major impact on oil prices, as he feels that the reduced demand from the US will be offset by growing energy demand from countries globally.
“Also the current exploitation of shale gas globally is not huge enough to offset the global demand for oil,” he says.
Mobius’ goal is to increase the assets under management in Templeton’s emerging market group by improving its investment performance and making more money for all of its clients. In addition, he wants to keep healthy and happy.
Mobius believes that to be successful in investing, one needs to be humble and never stop learning.
“I translate this into thorough research of what one is investing into. As the late Sir John Templeton would say, ‘Do your homework’ and ‘Learn from your mistakes’ when it comes to investing,” he says.
Mobius likes to see management with honesty, passion, an entrepreneurial spirit, vision, and above all, respect for minority shareholders.
Not surprisingly, Templeton is someone Mobius deeply admires.
The culture in Templeton which Mobius wishes to cultivate is that of continuous learning.
“It can be in the form of reading books, visiting exhibitions or talking to knowledgeable people,” he says.
In hiring staff, Mobius looks for curiosity, determination, gentility and humility.
Mobius says he has three key pieces of advice for those just starting out in their careers: focus on people, see the world and be humble.
“While today’s technology has created a more transparent and interconnected world, at the same time, I don’t think it can replace the value of human interaction, and of listening to and getting to know other people. Today, a popular pastime is taking so-called ‘selfies’ – focusing the camera lens on yourself.
“I say, you’ll reap more rewards by turning your camera around. Focus on other people. Get to know the people around you well: their problems, their worries and their passions.
“You can learn a lot this way about yourself too. Focus on the people you admire the most and whom you would like to emulate. Study how they developed their careers and learn from that. Most important of all – learn,” he says.
He adds that Templeton has all these qualities.
“If I were a fresh graduate today and deciding on what path to pursue, I’d take this piece of advice from Sir John, ‘Do something where you are performing a real service for people. It’ll be a success’.”