A bullish case for, gulp, emerging markets Templeton's Mark Mobius bloodied but unbowed

Mutual funds

August 16, 1998|By Bill Barnhart | Bill Barnhart,CHICAGO TRIBUNE

Mark Mobius radiates enthusiasm as he discusses investments in emerging markets, the year-long tumble in those markets notwithstanding.

Mobius, 62, manages the Franklin Templeton emerging-market funds, which have $12 billion in assets, and the slide in Southeast Asian economies has hurt the funds' cash flow. Recently he appeared before a crowd of brokers in a Chicago hotel to display slides and exude confidence.

Will there be a sustained collapse in emerging markets? No, it's a buying opportunity. "There's been a tremendous over-reaction," he said. "Bear markets don't last forever."

But what's the point of forcing such rationales from an international investment manager? You either believe in international investing as a diversifying mechanism and a long-term investment opportunity, or you don't.

A year ago, Mobius appeared in the same hotel at the annual Morningstar conference for financial advisers. He declared that emerging-market investing was not a fad. A few weeks later, Indonesia's currency collapsed and investors yanked their money out.

Since then, Mobius has taken more lumps. He confesses that he was too quick to plunge back into Southeast Asia after the Thai currency crashed last year.

"When Thailand fell by 50 percent, we saw opportunities to buy, so we started buying aggressively, and it went down another 20 or 30 percent," he said. "We lost on purchases we made, not only in Thailand but in Malaysia, in Singapore and definitely in Indonesia.

"You might say in hindsight we should have foreseen what was going to happen and pulled back. On the other hand, we now have a tremendous stock portfolio that, when it begins to turn, is going to be very valuable."

Mobius explained that the catalyst for a recovery in Asia is "when all of the debts are reorganized in these countries, when people begin to see that light at the end of the tunnel."

In countries without effective bankruptcy laws, that's a major wish, especially for someone investing heavily in local bank stocks. He estimated that it could take two years for the light to be seen.

Many investors who've been burned now believe the problem with investing in emerging economies is not that they are emerging -- an image that implies promise and opportunity -- but that they have emerged -- into corrupt, undemocratic societies ruled by greedy elites who are more than willing to fleece naive U.S. investors. Mobius acknowledges this problem but finds it most blatant in Russia, not Southeast Asia.

"The situation in Russia compared to Asia is very different," he said. "What we're seeing in Asia now is far greater investment protection for the minority investor. You are seeing much more transparency; you are seeing better government regulation. Now, finally, they're getting their house in order in terms of regulatory diligence."

Mobius holds fairly unconventional optimism toward Japan, which has suffered a weakening currency against the U.S. dollar, and China, where rumors of a currency devaluation persist.

"In the present context, everybody is afraid of devaluation, because it's been accompanied by a fall in the stock markets, but that does not always happen. In fact, the reverse is true in many cases: When you have devaluation, the stock market goes up, because people are looking for assets."

He disputes the widely held notion that Japan's recession is dragging down the rest of Asia.

"Japan's devaluation has beneficial aspects for the rest of Asia," vTC he said. "The Japanese can lend in Asia at very low rates. Japanese machinery, which is what these countries import, is much cheaper than ever before, so they can import much lower-cost capital goods.

"And Japan is not going to stay this way forever. This problem is reaching a nexus in Japan. But I don't think a recovery in Japan is required for a recovery in Asia. What's required is the continuing bull market in America and continuing imports by Americans from these Asian countries."

Each of these broad assertions can be, and has been, contradicted with authority.

The notion that sudden devaluation of a nation's currency is good for its stock market is particularly strange.

But shareholders of the funds that Mobius manages don't want an economist. They want someone who can hunt the globe for good stocks at the right price.

Pub Date: 8/16/98

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