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Here's to another 20 years

Created:

10 June 2009

Updated:

11 June 2009

Written by:

Jonathan Eley

Mark Mobius is already past the age at which most of us would expect to be retired, and he's not long stepped off a flight from Singapore. But ask him a question about emerging markets - the focus of the past quarter-century of his career - and there's still no stopping him.

Russia and Africa are among his latest preoccupations - surprising, perhaps, given that Russian companies account for just 7.4 per cent of Temit's assets, and South Africa - the only African country in the top 10 - for just 2 per cent.

But there's value to be had. "Going forward, we're looking very hard at Russia and the Baltics, which have been hammered. There's value on offer... we love bombed out markets," he told journalists at a gathering organised to mark Temit's 20th anniversary.

"We've been increasing Russian exposure recently; not just oils, but banks and consumer stocks like mobile telecos and even retailers."

I am reminded of an observation made by another big emerging markets guru, Jim Rogers, that while the Chinese diaspora are pouring money back into China, Russia's super-rich can't get their money out of Russia quickly enough. Why should an American put money into Russia, when Russians won't?

"They've been forced to change," he says of the oligarchs. "They borrowed too much outside Russia to support acquisitions and they're now being forced to sell. The Russian government is now coming in to take equity stakes...They're moving to a Chinese-style model where the government has control, although the entity remains listed and run for profit in the normal way."

There are still challenges, of course - foremost of which is the lack of a western-style savings market. But even this is starting to change, as Russian banks get the hang of that most un-Soviet of concepts - customer service.

"I asked our guys in Russia once: where do you keep your money? The answer was 'under the bed'," he notes. Now, trust in banks is starting to develop.

The next big thing

Africa, by contrast, is true frontier territory, the next big thing. "You just can't ignore Africa. It has the highest rate of population growth in the world. There's going to be plenty to do there."

"Africa is going to be the next growth engine; countries like Nigeria and Kenya." The Middle East is another promising arena - and he's not talking about established markets like Dubai or Oman. "Iran has huge potential" he says, as indeed do Syria and Iraq. Does he have people on the ground in Baghdad yet? "No. We are not in Iraq yet. We have to persuade custodian banks to set up there first and there's a whole process they have to go through, they need to measure how thick the vault doors are." He's only half-joking.

Iraq is for the long term. Right now, he has no hesitation in naming his favourite country: Brazil, both on a personal and professional level. "Never before has Brazil been so good, but we have to be vigilant because of the history of that region," he remarks. Brazil is the single biggest country weighting in Temit, and four out of its 10 biggest company holdings are also Brazilian, including mining giant Vale and oil company Petrobras. The rest of South America, though, is a mixed bag. Chile remains the model pupil, but "Argentina is a basket case and so is Venezuela".

Looking east, Mr Mobius is encouraged by recent political developments in India. "We are very positive on India. The election was a watershed...Even if they accomplish half of what they've said they want to accomplish, it will be very positive. Of course, that's already in the price of the stocks, so we're not rushing in now. We'll wait for the dust to settle."

If anything, the situation in India is even more promising than in China - with no one-child policy, it is a younger country and its middle class is growing even faster.

Some things never change, though. One of them is the abysmal standard of corporate governance throughout the emerging market world. I ask whether things have got any better since the Asian financial crisis in the late 1990s. "There has hardly been any improvement," he complains. "It's better only in the sense that there's more choice and more awareness. The corporate governance situation is bad globally... it's incredible when you look at the way PCCW [a Hong Kong telco trying to buy out minority shareholders] is continuing to violate shareholders' rights."

For all such shortcomings, though, banks in emerging markets have generally come through the credit crisis in pretty good shape. "Asia had its subprime crisis 10 years ago - and learned the lessons," he says.

Riding for a fall?

Are emerging markets looking overbought now, after notching up gains of almost 50 per cent since the trough? "There is a correction on the way," he admits, with surprising candour. "Many hedge funds must be shorting," he adds, noting that with $600 trillion-worth of derivatives still sloshing around the world's financial system, amplified volatility is going to be a fact of life for some time to come.

Does he need that kind of stress at his time of life? He is still running Temit, but a gradual process of handing over to younger fund managers has begun. "My main job these days is badgering," he says. "Why haven't you bought this yet? Have you seen this?"

So the Mobius influence lives on, as does that of Sir John Templeton, the founder of Franklin Templeton, who died earlier this year. "He's had an incredible influence on me and still has," he says of Mr Templeton. "His thinking about investing - his philosophy - guides us on a daily basis: Look for bargains. Don't follow the crowd, Buy when others are selling and sell when others are buying. Take a long-term view. Do your research and base your investing on logic, not emotion. All of those ideas continue to influence our thinking and investment behaviour."

■ See The Templeton way - Mr Bearbull's tribute to John Templeton