Mobius on leading emerging market regions

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The paragraphs below come courtesy of Mark Mobius, emerging markets guru and executive chairman of Templeton Asset Management.

Asia and Latin America are probably the most interesting emerging market areas in the world. This is not only because of their different cultures but also because their conomic histories have been so varied. If we consider the performance of markets in both areas, the Asian investor might be misled to think that Asian markets have outperformed Latin American markets but that is not necessarily the case in all time periods. For example up to November of this year, the MSCI AC Asia ex Japan Index was up 65% in US$ terms while the MSCI Latin America Index was up 100%. In 2008, the performance of both areas was about the same with Asia moving down 52% and Latin America falling 51%, a slightly better performance than Asia. In 2007, Latin America again beat Asia. While Asia was up 41%, Latin America was up 51%. Again in 2006, while Asia was up 34%, Latin America recorded a bigger rise of 44%. Of course there have been periods when Asia performed better than Latin America but recent history shows that Latin America has been the leader in performance rankings.

If we look at the demographic, geographical and economic characteristics of the two regions, there are some significant differences as well as similarities. Let’s take population; while Asia’s population numbers 3,600 million, Latin America’s population is only 550 million. Population growth in Asia has been slightly lower than that of Latin America. Between 2003 and 2008, Latin America’s population grew by 1.3% while Asia’s grew by 1.2%. One strong benefit that Latin America’s population has is that they have more land available to them. While Asia’s land mass is 25 million square kilometers to hold that 3,600 million people, Latin America has 20 million square kilometers to hold 550 million, a clear difference.

In the economic arena, growth in Asia has been superior to that of Latin America. Between 2003 and 2008, while the average annual growth rate in Asia was 8%, it was 5% in Latin America. This year we expect Asia’s growth to be flat but Latin American economies will shrink it’s economies by an average of 2.5%.

Of course despite the slower growth in Latin America, total GDP is, on a per capita basis, better than Asia. In 2008, Asia’s GDP totaled US$9,180 billion so that the per capita income was about US$2,600 while Latin America’s GDP was lower at $4,170 billion but its smaller population resulted in a per capita income of $7,580, significantly higher than that of the Asians.

In the foreign reserves area, Asia is definitely the superior with reserves now surpassing US$3,500 billion while in Latin America, total reserves amount to only about US$500 billion. Although Asian exports and imports amounted to US$7,300 billion in 2008, compared to Latin America’s US$1,700 billion, the growth of trade for both regions has averaged about the same during the last five years with an annual average growth of 19%.

Looking at the stock markets in both regions, the market capitalization of Asian stock markets has reached US$9,510 billion compared to Latin America’s US$1,814 billion. Asia also has many more listed companies with about 15,200 stock exchange listings compared to Latin America’s 1,300.

We continue to find good value in Latin American stock markets despite the smaller size compared to Asia. Currently, the price/earnings ratios of both areas average 14x, while the price to book value ratios are also the same at about 2x.

Dividend yields differ though, with Asia at 2% and Latin America with 3%. The large markets in Asia are China and India where the emphasis is on manufactured goods and services while in Latin America Brazil, the dominant country, is strong in commodity exports. Nevertheless, we are finding opportunities in almost all sectors in both regions with a number of good manufacturing, consumer and banking stocks throughout Latin America and Asia.

As such, the future of both regions is good and holds a great deal of promise for investors, which is why investors should have exposure to both regions. This will enable investors to benefit from the developments in Latin America and Asia.

Source: Mark Mobius, Franklin Templeton Investments – Emerging Markets Overview, December 11, 2009

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