Q&A on emerging markets with Mark Mobius
I have been positive on emerging markets for a while, maintaining that especially China and other Asian countries, as well as resource-based Latin American countries, would we the leaders of the economic recovery and stock market performance in the next upswing. These views are supported by a recent Q&A with Mark Mobius, Templeton Asset Management’s emerging markets guru, as published in the company’s Market Views newsletter.
What’s your assessment of the global economy?
In which regions are you most optimistic about investment opportunities?
Asia is the largest emerging market region in the world. Asian countries are also growing relatively fast. They include countries like China and India with very large populations whose per capita income is growing, and capital markets in those countries are undergoing rapid development. Economic growth remains relatively high, per capita incomes have been rising, valuations remain attractive and reforms continue, thus improving the region’s business and investment environment.
Valuations in Eastern European markets are also attractive, very attractive in some markets such as Hungary and Turkey which are trading at low single-digit P/Es. Poland is one of the few countries in the region that is expected to record positive GDP growth in 2009. Its valuations are, however, are not as attractive as some of its regional peers. Russia is another interesting market. With its huge land mass, large population and abundant natural resources, the country could become one of the fastest-developing economies in the longer-term.
Most Latin American economies are faring relatively well taking into account the current global macroeconomic conditions. There are selective countries which are more prone to the global downturn. For example, Mexico, but greater inter-regional trade has offset some of the adverse impact of lower export demand from the US. One of the region’s main attractions is its huge consumer market with pent-up demand for goods and services and world-class companies that are at the same time under-leveraged and inexpensive.
In addition, the region’s natural resources are among the largest in the world. Countries such as Chile and Peru which are among the world’s leading copper producers. Mexico is a net exporter of oil. Brazil is a major exporter of iron ore, and soft commodities such as soybeans and coffee as well. Colombia also exports commodities such as oil, coffee, coal, and so on. While commodity stocks have been negatively affected by the recent decline in commodity prices, many companies are still profitable at current price levels.
Also, frontier markets, which are the emerging markets of the future, are starting to look interesting. For example, the Middle East is of great interest and we believe the potential for economic growth and development remains considerable, especially if the current trend toward the implementation of political and economic reforms remains on course. Africa is another area we’re excited about. In addition to South Africa, regional economies are also beginning to look attractive.
In your opinion, what are the biggest threats to the global economy?
Why are you so positive about the outlook for emerging markets?
- are undervalued, trading at extremely attractive valuations and have strong fundamentals
Source: Mark Mobius, Templeton Asset Management – Market Views, May 12, 2009.
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