Stocks in China and India offer "good bargains" after benchmark indexes in the nations declined more than any other major market this year, Templeton Asset Management's Mark Mobius said. "We've been rearranging the portfolio based on valuations, which have come down pretty dramatically in places such as India and China," Mobius, who oversees about $47 billion of emerging- market equities as executive chairman of Templeton, said in an interview from Toronto. "There've been big declines."
Mobius joins investor Jim Rogers in favouring Chinese stocks after they plunged 46 per cent this year. China and India, the two most populous nations, are the worst performers among the world's 20 largest stock markets as soaring raw material prices and slowing economic growth weigh on profits. Last year, China's main index surged 162 per cent and India's advanced 47 per cent.
China's CSI 300 Index is valued at 21 times reported earnings, near the lowest in more than two years, and down from a peak of 53 times in October 2007. In India, the Sensex is trading at 14 times reported earnings, down from a high of 31 earlier this year. That compares to a multiple of about 22 times for the Standard & Poor's 500 Index in the US.
"Markets such as China and India are no longer expensive but neither are they cheap," said Leslie Phang, the Singapore-based head of investments at the private-clients unit of Schroders, which oversees about $260 billion globally. "In the longer term, is earnings growth in those markets sustainable? We're still unconvinced that we're out of the woods."
Rogers, who said he hasn't sold any of the Chinese equities he started buying 1999, told investors on June 28 not to "give up" on the nation's stock markets.
Faber, Rogers, Mobius
Marc Faber, publisher of the Gloom, Boom & Doom Report, disagrees. The investor who advocated bailing out of US stocks before 1987's so-called Black Monday crash and correctly predicted last August the US would enter a bear market, said on July 4 that investors betting on a rebound in China's tumbling stocks are setting themselves up for more losses. Since then, the CSI 300 has gained 6.2 per cent.
Mobius's Templeton Emerging Markets Fund has dropped 18.8 per cent this year, more than the 16.4 per cent decline in the benchmark MSCI Emerging Markets Index. The fund's top 10 holdings include Aluminum Corp of China, the nation's biggest producer of the light metal, and Sesa Goa, India's largest non-state iron ore exporter.
Third worst
China's CSI 300 is the second-worst performer among the 88 global indexes tracked by Bloomberg, plunging on concern that the cooling economy, which expanded last quarter at the slowest pace since 2005, will damp profits. Only indices in Vietnam and Iceland have posted larger losses.
In Hong Kong, the Hang Seng China Enterprises Index, which tracks the so-called H shares of Chinese companies, has lost 23 per cent this year and is valued at 16 times reported earnings.
