Posted on 14 February 2011
Financial Times Q&A session with Dr Mark Mobius
The financial storm of the past year has cast doubt on a number of theories concerning the soaring success of emerging markets.
Most notable was the decoupling theory, which suggested that many emerging markets had sufficiently developed domestic economies that could flourish despite the storm from the US. Meanwhile, there were also suggestions that the balance of economic power would start to shift towards China and Russia and other new wealth creators and resource giants.
Do these theories still hold water in the wake of the most turbulent year seen since emerging markets began to develop? Where now, and in the near future, are the opportunities for investment in emerging markets?
Mark Mobius, executive chairman of Templeton Asset Management, oversees more than $34bn in emerging market equities. He is also the fund manager of the UK-listed TEMIT fund and the US-registered Templeton Developing Markets Trust.
He has been at the forefront of drawing investors toward frontier markets, including Bangladesh, Botswana, Estonia and Tunisia.
Question. Since the end of last year, we have seen emerging markets moving more or less in the same direction as developed ones. Do you think this demonstrates that emerging markets are still heavily reliant on the west?
Answer. Dr Mark Mobius: Emerging markets are tied to the global markets including the developed ones since world trade has expanded dramatically in recent years and the advent of rapid and cheap communications means that news in one market can impact other markets.
Probably more importantly, money flows around the world are much greater and faster than any other time in the history of mankind.
This all, however, does not mean a downturn on one market will be followed by downturns in other markets. Emerging markets may react in the short term to something happening in the U.S. but within a short period of time local influences will take precedence and will move in different directions than developed markets.
The recent bull market in emerging markets outpacing anything in the developed ones is evidence of this.
Question: What are your expectations for Turkish markets? How risky do you think it is to invest in Turkey given the global turmoil?
Answer Dr Mark Mobius: We are very bullish on the prospects of the Turkish markets. We have a particularly high overweight position in Turkish companies.
We do not think it is risky to invest in Turkey despite the global turmoil because Turkish companies are particularly adept at adapting to changing conditions.
Question. Do you share the view that an important component of emerging economic development has been the result of credit-based growth in the US and Western Europe, and that the current reduction in leverage underway will now unavoidably reduce the flow of money to the developing world, causing a contraction in their capital markets? Are any developing countries exempt from this potential contraction? Will it be a blessing in disguise for China, allowing it to regain control over its monetary policy?
Answer. Dr Mark Mobius: Yes an important component of emerging country economic development has been financed by international capital flows.
Foreign direct investment in emerging markets has had a big impact on the growth of countries like China, India, Korea, Turkey and others.
In previous periods a reduction of US and Western Europe investment would have had a very severe impact on emerging countries however, now the emerging countries have larges stores of foreign reserves and savings upon which to draw for domestic investment.
For example, China is the largest holder of foreign reserves in the world today with about US$1,500 billion in foreign reserves. Russia has over US$500 billion reserves. India has over $250 billion. Up to now a lot of those reserves have been in U.S. Treasury instruments, so what happens to interest rates and the USD has had an impact on those countries.
However, central banks in emerging markets are beginning to diversify their reserve investments into other instruments and currencies. They thus have a great deal of control of their monetary policies.
The Financial Times Limited 2008 24 September 2008 (Abridged)