Godfather of emerging markets

In the fourth instalment of our series on the world's greatest investors, CHARMIAN KOK turns the spotlight on veteran fund manager Mark Mobius

BORN to a German father and a Puerto Rican mother who were immigrants to the US, emerging markets guru Mark Mobius believes he inherited their frugal and simple habits. 'They were children of the Great Depression. Therefore, they were great savers and never borrowed,' commented the veteran fund manager, who has never borrowed money from any bank or person.

Today, Mr Mobius, 70, is the managing director of Templeton Asset Management and manages some US$35 billion worth of funds. The Singapore-based investor directs the Templeton Global Emerging Markets Equity Group and has posted average returns of 13 per cent a year, beating the 6 per cent gains of the emerging markets benchmark index.

Having over 40 years of experience in his field, Mr Mobius is sometimes known as the 'Godfather' of emerging markets. A vocal proponent of the sector, he popularised the emerging markets in the 90s at a time when few investors dared to venture there.

Why emerging markets?

Mr Mobius himself spells it out clearly: 'The key is growth. They are growing at double the rate of developed markets.' For him, emerging markets possess a greater upside in the long term as compared to developed ones. 'Specifically, I pick emerging markets for investment because I feel they offer the best opportunity for higher returns and diversification,' explains Mr Mobius in his book, Mobius on Emerging Markets.

Two reasons are offered by Mr Mobius as to why emerging markets offer higher than average returns: the economies of the emerging nations grow more rapidly and the stock markets of those nations are also expanding quickly. As emerging markets grow, 'spending in those economies grows and the requirements for credit and finance expands, capital and equity market development are stimulated', he highlights.

According to him, developed markets are as likely to experience negative returns as emerging markets and therefore, investing in developed countries does not guarantee safer earnings. Moreover, since emerging markets tend to achieve very high earnings in the years that have positive market returns, investors have a better chance of attaining higher overall returns.

Emerging markets also offer a chance of better diversification for investors as the corelation coefficient of aggregated emerging markets against US markets is as low as 0.077. 'Emerging market investments therefore serve to reduce the risk of volatility in a portfolio to a much greater extent than investments in other developed markets would,' writes Mr Mobius.

Value orientation and long-term investing

Mr Mobius describes his investment philosophy as mainly value-oriented, or 'bargain hunting'. At Templeton, investors believe that the best results are achieved by finding companies that are undervalued in the market. 'We are always looking for companies that are selling below what we think is their fair value,' he said. He looks out for companies with low price in relation to earnings, have low debts, are able to get a high return on capital employed, among other value criteria.

Mr Mobius puts things in perspective: 'The investor who purchases a stock because of basic value can enjoy a certain peace of mind. If, after purchasing a stock at a low price in relation to value, the price continues to decline, then it is simply a better bargain than it was before. On the other hand, the speculator who purchases in the hope of a quick profit places himself at the mercy of market fluctuations because he can succeed only by selling his shares to other speculators at higher prices.'

Furthermore, Mr Mobius emphasises that his investment approach looks at the long term with a five-year time frame. According to the investing guru, a short-term philosophy is detrimental to the health of the company and the investor. Without looking at a long-term view, growth prospects will be limited and planning becomes stunted.

In order to pick the right investments, the importance of research on a company cannot be underestimated. Mr Mobius, famed for his globe-trotting lifestyle, travels extensively around the world to visit companies at ground level to better understand their management and operations. 'It is necessary to meet the people behind the company and also to observe how they are operating . . . to get a general feel of how the company is going forward; whether they are looking very optimistic or if something is going wrong that might spell trouble for the future,' he elaborates.

Emerging markets today

With the recent boom in emerging markets, many people are now beginning to fear the repercussions of a market correction. However, Mr Mobius urges investors to hold tight and refrain from pulling out of emerging markets. Valuations of emerging economies are still reasonable, says the fund manager. 'In fact, emerging market average valuations are below that of the US so we're still able to find good investment bargains.'

Although a bear market for emerging markets is possible, the difficulty of predicting the timing of that means investors should diversify further instead of withdrawing investments completely. Timing is crucial, 'because from the time you predict one to the time it happens, it could be years', warns Mr Mobius, adding: 'If you're not invested in that time, you've lost.'

On the whole, Mr Mobius remains upbeat about emerging markets. 'Emerging markets continue to report strong macroeconomic growth and are implementing structural reforms. Taking a long-term view, emerging markets continue to offer investors an attractive investment destination. The role of emerging markets in the global economy has grown significantly in recent years. These countries have made fundamental improvements to their economies and the changes are here to stay. These developments mean that emerging market investments contain good opportunities.'