Mark Mobius was interviewed by Frederik Balfour of Hong Kong-based correspondent of Business Week by phone on questions about his view on Emerging Markets in 2010.
"Mark Mobius is a legend among emerging-market investors. For more than 30 years, the 73-year-old fund manager, who oversees $33 billion spread across 35 Franklin Templeton funds, has scouted for investment opportunities in unlikely places. His U.S.-listed Templeton Emerging Markets Fund (NYSE:EMF - News)had a 109% return as of Dec. 14, compared with 73% for the MSCI Emerging Markets Index. Hong Kong-based correspondent Frederik Balfour caught up with Mobius by phone as the fund manager was visiting Doha, Qatar -- one stop on an itinerary that included Dubai, Lebanon, Saudi Arabia, and Libya.
Q: How do you expect emerging markets to perform in 2010?
A: You cannot expect the same kind of percentage increases, but that doesn't mean you can't have a very good return. We are not in the mode of selling massively or getting into cash, that's for sure. That's probably the consensus opinion, which is usually dangerous. But we are finding companies with good dividend yields, companies that are growing.
Q: What was behind the huge runup in emerging markets in 2009?
A: With the subprime shock, everybody was looking for safety. And for some strange reason, they thought the U.S. dollar was safe and went into money market funds until January or February of 2009. Then people began to wake up to a few things. One was that the supply of currency would at some time outpace demand, so value would decrease. In China there was 21% growth of money supply, and in the U.S. 18% to 20%. That created this incredible liquidity looking for a home as people woke up (to the fact) that they should think about inflation coming down the pike. They weren't getting any yield on dollar deposits, so equities were the obvious answer.
Q: Have emerging markets moved too far too fast?
A: The percentage increases are a bit misleading because you are coming from a low base. We are only halfway toward the previous high of 1997. Have we gone too far? The only measure we have is valuations, and probably the best single measure is price-to-book value ratio. (Book value is a measure analysts use to estimate what a share of stock would be worth if all the company's tangible assets -- factories, real estate, and so on -- were liquidated.) If you look at the average price-to-book ratio based on the stocks in the MSCI Emerging Markets Index, we are only halfway to the 1997 high. The absolute high was three times book, the low was one times book, and now we are at two times book, roughly."
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