The volatility does not bother him one jot.
“I am an emerging markets bull. I look at the long term. In seven of the last ten years, emerging markets have outperformed the US and world markets. Last year was an under-perform.
“This year the jury is still out.”
The emerging market sell-off last year was indiscriminate and came after the US Federal Reserve signalled its intention to roll back its bond-buying programme. But this year investors are becoming more nuanced and less likely to paint all markets with the same brush.
“Of course the dollar is still the most important currency in the world, so everything the Federal Reserve does will have a psychological impact if not a real impact. Emerging markets will not be unscathed,” he says.
Mobius was talking after a day spent visiting companies in Cape Town and Stellenbosch, where he saw Remgro among others. Johannesburg is the next stop on the itinerary, before he jets off to Latin America – Argentina, Brazil and Chile.
Many emerging markets are in much better shape than the developed markets. “Their debt-to-GDP is lower; they have more forex reserves and higher growth prospects.”
This makes them more resilient to investor concerns around the impact of tapering.
An increasing slice of his investment focus will be in what he refers to as frontier markets -Pakistan, Vietnam, Kazakhstan, the UAE, Saudi Arabia, Egypt and Nigeria. Of Templeton’s $53bn invested in emerging markets, about $4bn is invested in frontier markets – up from $2bn last July. And of this, about one third is invested in Africa.
The attraction is that the identified companies are high-growth and cheap.
“Look at the Nigerian banks; in that industry long growth of 20% is not unusual.”
Favoured companies include consumer companies, banks and telecommunications companies, and anyone “making clever use of technology” to overcome the developmental divide.
He is attracted to innovative companies like Kenyan mobile operator Safaricom. But he also watches “developed market” companies like DHL and Fedex operating in challenging markets.
“What is happening is that we are tracking growth. You want to capture growth. Stock markets are driven by what people believe will happen in the future. What are the prospects for growth? What makes our lives difficult is that we have a tendency to look back. We should be looking forward.
“It is possible to operate in an economy that is at least on a path of privatisation and en route towards a market economy – as long as they stick to that model we can operate. The privatisation of assets and embrace of market economies has been the theme driving emerging market growth around the world.”
But what is likely to frighten Franklin Templeton away, he says, is talk of foreign exchange restrictions and confiscation of assets. Even then Mobius is measured.
“I don’t have a problem with populist measures. For instance in Thailand the Red Shirts have put more money in the hands of the lower segment of the population. But this must be combined with an improvement in the education system, justice system, in security.”
In South Africa he is comforted by South Africa’s judicial and constitutional framework. South African managers have finally realised their place is in Africa.
“They are now focusing on territories to the North. The best known examples are the retailers, but there is plenty happening under the radar. There are lots of difficulties and challenges but the markets and opportunities are there.”