The executive chairman of Templeton Emerging Markets Group spoke to Financial News about the prospects for frontier market investing in 2013, and shared his advice for aspiring fund managers.
FN talked with Mobius, regarded as one of the foremost emerging markets investors after a career of more than 40 years, during his latest visit to Africa. Mobius discussed his visit to Egypt, currently undergoing a stormy political transition which has sparked investor unease, and the wider growth narrative in the region.
Financial News: What opportunities do you see beyond the traditional Emerging markets – for example in the so-called frontier markets?
Mark Mobius: In terms of frontier markets generally, our biggest holdings are in Kazakhstan, Nigeria, here in Kenya, and we’re also in Vietnam in a big way. Those are the most significant holdings we have right now. However, we are particularly excited about opportunities in Africa broadly, as the continent is expanding rapidly and we are seeing accelerating growth in many African countries.
FN: What is your outlook for emerging markets equities?
MM: Our outlook remains positive. We expect emerging economies to continue to grow much faster than developed economies in 2013 and for the foreseeable future, since we believe the economic fundamentals of most emerging economies remain strong despite the global financial crisis. In addition, we have seen the US Federal Reserve, European Central Bank, Bank of Japan and others pumping money into the financial system.
In our view, this liquidity is positive for emerging markets because it means that there is lots of cash in the system. As such, we expect more inflows into stock markets generally, including emerging stock markets. Despite the psychology of risk aversion that has seized financial markets since the eurozone crisis erupted, money has been pouring not only into emerging equity markets but even into the newer and smaller frontier markets.
FN: What advice would you give to aspiring emerging markets fund managers?
MM: I would say anybody with an educational background that comes from the frontier countries has an immediate advantage. And if they’ve got experience in business, and can understand how companies work, that would be the next most important thing. Over the past 10 to 15 years we’ve added people to our team from emerging markets such as Vietnam, and here in Africa. For us, local knowledge is key to making investment decisions and we have a strong on-the-ground presence across the emerging markets which enables us to really understand what is going on, economically, politically and culturally.
FN: Having just visited Egypt, what are your thoughts on the current political fallout and its impact on the investment environment?
MM: Looking at Egypt, I think we will see continuous upheaval. In terms of the economics, it looks like life goes on there. We were there in Cairo, visiting companies inside and outside the city. There are no guarantees that there won’t be further conflicts but at the same time the situation looks more stable going forward.
When the market was low, there were many attractive investment opportunities, and we took advantage of these. Now it has stabilised and it’s not universally cheap, so we have to be selective and take opportunities as they come. Whatever happens in Egypt is going to be someway replicated in other parts of North Africa this year and we expect to see interesting opportunities in Tunisia, Morocco and Libya. In the wider Middle East, if you go down to the Gulf things are going very well, there are lots of opportunities, expansion and growth, especially in Saudi Arabia.
FN: Is the African growth narrative still alive and well?
MM: Very much so. We are seeing rapid growth in many countries across the continent. It’s interesting with this whole conflict situation, we were just in Rwanda, and we were quite impressed by what they’ve been doing in terms of infrastructure and governance initiatives. It’s unfortunate that they’ve been involved in Congo, and that has hurt them from the perspective of international donors. But they’re doing the right things from an economic perspective, and from our point of view it’s just a matter of time before problems die out. Institutions like the IMF and World Bank have created useful programmes and it’s just up to these countries to follow through.
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