Financial markets hate uncertainty. But Mark Mobius, one of the leading figures in emerging markets investment over the past three decades, thrives on it. Uncertainty engenders risk, for sure - but it also creates opportunities.
In particular, short-term uncertainty against a backdrop of long-term structural shifts are the kind of opporunity that interests him - and this is the sort of scenario that presents itself in two of his favourite emerging markets plays right now. These are not necessarily markets to which Templeton Emerging Markets Investment Trust (Temit), the vehicle he manages, has committed huge amounts of capital, but they are markets where Dr Mobius sees an opportunity forming.
Take Turkey, for instance. Wonderfully positioned at the crossroads of Europe and Asia, the country has a large and predominantly young population, and a substantial number of genuinely well-run corporations (a legacy, perhaps, of the exposure many Turks have had to German manufacturing practices). What spoils the whole party is a political row over secularism. "The political arguments have sent prices down, and the EU is making the wrong noises."
A similar situation is playing out in South Africa. When Dr Mobius mentions this country, I automatically assume it's in the context of commodities - South Africa is a major producer of gold, platinum, coal and ferroalloys. No, he responds, "it's a retail story".
"Under apartheid, black South Africans did not participate fully in the economy. Now, increasingly, they do. They've got money - and they're spending it," he says. This massive enrichment process is feeding through to retail sectors, yet retail shares are being de-rated because of the relatively hawkish stance of the Reserve Bank, which is raising interest rates to combat inflation.
He also feels that new ANC leader Jacob Zuma "could turn out to the best thing that happened to the country", comparing him to Lula in Brazil.
And the rest...
None of this is to say that Dr Mobius isn't keen on the 'traditional' emerging markets - Russia, India and China. He is - and doesn't expect that booming commodities prices will hobble the growth of the latter two.
"These countries are increasingly realising that they cannot continue to subsidise prices...so retail prices are going to rise, and yes, that is going to cause some pain, but it should relieve the pressure," he says. Growth will moderate, but not go into reverse, he predicts.
How does he get exposure to Chinese growth, given that there is no domestic bond market, domestic stock markets are closed to foreigners, and the currency is managed? The answer: Hong Kong. More than ten years after the handover, the former colony remains the best place to buy China at sensible prices.
"Yes, it would be great if the A-share market were open to foreign investors, but at the moment, we're finding that shares in quality Chinese companies are cheaper in Hong Kong than in China," he says.
Lessons learned...
The increasing maturity of capital markets in Asia particularly makes Dr Mobius sanguine about the risks of capital flight. Fund redemptions remain a risk, he acknowledges, but local makets are deep enough to take the strain.
And as the west comes to terms with the aftermath of a cheap lending binge, he's confident that many Asian countries learnt their lessons ten years ago, when stock markets and currencies across the region collapsed in the aftermath of exactly the same kind of excess.
"All these countries borrowed heavily in US dollars... and when their local currencies fell, they could not pay back the loans," he says. "Central banks and governments have certainly learned the lessons." He contrasts this with the states of Eastern Europe, which have yet to endure capitalism's harsher lessons. "I see mortgages in Poland being written in yen and Swiss francs," he remarks.
Such twists and turns, booms and busts, are all part of the capitalist process, he maintains. And for all the risks of emerging markets, the opportunities remain alluring. "We're in a bear market now... yet we're still looking at overall growth of 6 per cent across all emerging markets," he notes.
YOU ASK THE QUESTIONS!
Mark Mobius has kindly offered to answer Investors Chronicle readers' questions about emerging markets.
You can send your questions using the form on the YourOpinion page. Please enter 'Mark Mobius' in the subject line.
Questions must be submitted by 14 July and the answers will appear online and in the magazine shortly after that date.
MORE ON EMERGING MARKETS...
Mark Mobius has spent over 30 years working in emerging markets, and spends around 300 days a year on the road. He has worked for Templeton since 1987.
He is the author of numerous books on emerging markets, which you can buy at a discount in the IC bookstore.
Almost as enthusiastic a proponent of emerging markets is our contributor David Stevenson. See his epic feature The seven hottest emerging markets for more on 'frontier markets'.
Investment legend Jim Slater is particularly keen on Brazil; see his feature Buy Brazil for more.
For more on ways to invest in China, see London's best China shares.
For more on India, see 'Investing in India's growth', and for Pakistan see Pakistan: the crossroads
For more on Africa and the Middle East, see Risking an African adventure
For more on investment fund choices, use our Funds data tool (you need to register first).
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