 "Mark Mobius")
Mark Mobius, the executive chairman of Templeton Emerging Markets Group and famed as emerging markets guru, still believes in the emerging markets growth story.
In an interview with Jitendra Kumar Gupta he said that India’s story is equally compelling and its equity markets currently offer opportunity. He also believes that the fear among investors in emerging markets about the US Federal Reserve (Fed) starting to "taper" its asset-buying program appears overdone. Excerpts:
If bull markets are born in times of pessimism, is it not a perfect time to buy India?
In terms of India, yes, that is true. The pessimism in India is an excellent opportunity as we are now able to buy companies with good fundamentals at even more attractive prices. Moreover, the government is working towards implementing required reforms.
It's almost five years now post the Lehman crisis and markets across emerging economies are trading below their peak levels see in 2008. How do you assess the period after the crisis and what are key take-away for investors?
As of end-August, while emerging markets were trading at about 14% lower than their peak in May 2008, however, the markets have more than doubled from their low during the crisis in 2009 and the trend looks like it will be upwards.
We remain positive on the long-term growth prospects of emerging markets. Their strong performance since the crisis is evident of the resilience and potential of these fast-growing markets.
My advice to investors in emerging markets is that they should be well diversified. It is actually possible to have all your eggs in the wrong basket at the wrong time. To reduce one's vulnerability to this eventuality, every investor should diversify.
Moreover, there are great opportunities all over the emerging markets world. If you search worldwide, you will find more and better bargains than by studying one nation.
Also, undertake dollar cost averaging. Set a goal as to what% of your portfolio you want in emerging markets and then put the same amount each month over a few years.
Investors who establish such a program from the very beginning to purchasing shares over a set period of time have the opportunity to purchase at not only high prices, but also low prices, bringing their average cost down.
How do you think Emerging markets will fare in the coming months in the event of the US recovery and withdrawal of monetary support by the Fed?
The amounts continuing to come into emerging market funds such as ours indicate that confidence has not been lost among many investors. For those who have fear, we feel that fear among investors in emerging markets about the US Federal Reserve (Fed) starting to "taper" its asset-buying program appears overdone.
As we see it, the Fed's talk of tapering does not necessarily mean that it is going to start tightening rates anytime soon nor that the money supply will suddenly dry up. We must remember that the various quantitative easing programs have been cumulative, such that the liquidity pumped into the system has piled up and is not likely to disappear overnight.
It is only recently that banks have begun to grow their loans; previously they were using the liquidity supplied by the Fed to strengthen their balance sheets and were holding US Treasuries.
In addition, even if the Fed starts to pull back as the US economy improves, other central banks are still generating liquidity, which we feel could support investor flows into emerging markets. Japan has been embarking on a massive easing program, which is greater as a percentage of their GDP than the US program.
As many call it, do you believe emerging market story is over? Is the risk-reward matrix changing?
No, the emerging markets story remains positive. There is a huge amount of potential in these markets and we expect the continuation of positive developments. Most importantly, the rise of frontier markets within the emerging markets space is giving new life to the entire emerging markets story.
Coming back to India, how do you read the current economic environment particularly in the light of elections next year and what implications will this have on the investments?
We recognise that there is broad consensus on reforms from nearly all the political parties. The individual states are also playing a role in carrying forward reforms. And although many commentators are looking towards the next elections, we prefer to look at individual stock opportunities.
Do you think there is value in India at these levels particularly in the mid cap space?
Yes, we continue to find opportunities in mid cap stocks as it includes a large number of listed companies. The major issue, however, which needs to be addressed, is that corporate governance needs to be improved so that minority shareholder interests are protected and not compromised in favour of the majority shareholder.
As a foreign investor how would you view India's current situation?
India still offers one of the most exciting opportunities for investments given its relatively higher growth rates, availability of skilled manpower and high quality of entrepreneurs. Moreover, India's huge consumer market is another important factor which should support the market's recovery in the future.
We continue to look for companies which have attractive fundamentals. Ultimately it is not only about valuations but about corporate governance practices. We believe there is a very strong relationship between good corporate governance practices and good long term stock market performance.
At 14-15 times next year's (FY15) earnings Indian markets are trading at their historic average. How do you assess valuations at current levels in light of a possible slowdown in earnings?
Valuations in many companies currently look compelling, both in terms of earnings and assets. Moreover, while the Indian market as a whole is trading at a premium to the MSCI Emerging Markets index, it is still cheaper than many of its regional peers.
