Emerging markets are dynamic and growing consumer sectors and will not be affected as much as it is believed by US recession, Mark Mobius, Managing Director, Templeton Asset Management, Ltd, tells Financial Review
There are differing views among economic analysts and journalists as to whether the US is already in recession or heading in that direction.
Do you believe the US is facing recession this year? And how do you assess the Fed's action of lowering interest as well as the administration's stimulus package to tackle the situation?
While we try to avoid making specific market predictions, we believe the recent action by the US Federal Reserve should support the economy.
The lowering of interest rates is positive, and the economic stimulus package from the government to tackle the situation is also good. It must also be remembered that there are also a number of automatic stimulus packages that kick in when unemployment increases, which should also help.
Recession in the US would have an impact globally, even if the dependence of developing/emerging countries on the developed world has lessened. How much do you think a US recession will impact emerging markets such as China, Russia, India, Latin America and natural resource-rich Africa and the Middle East?
The impact of a US recession on emerging markets would come mainly as a result of a change in market sentiment, but not as much from an economic point of view, simply because emerging markets such as China, Russia, India and so forth have very dynamic and growing consumer sectors.
There is a view that emerging markets may have topped, somewhat like the tech bubble years ago. But there is an opposite view that they have actually become safer than more mature environments. Can emerging markets these days even be considered a safe haven?
Yes, emerging markets can be considered to be a safe haven because of their different economic growth characteristics.
How do a weakening dollar and rising oil prices impact emerging markets? Haven't Indian companies in the services sector, much dependent on US exports, been badly hit by the rising rupee? Has your strategy changed (in terms of selecting companies in various emerging markets) in light of these two factors?
A weakening dollar is certainly a problem for companies exporting to the US, but it must be remembered that many of these companies already have very good margins and are not so sensitive to currency changes, because of their high competitiveness.
While rising oil prices may hurt companies in certain sectors, oil exporters (of course) have been benefiting from rising oil prices.
As for our investment strategy, no, this has not changed, as factors such as these are already a part of our investment research, and thus have been accounted for in our investment decisions.
Which are the markets you still consider expensive (and why)? In 2006 and early 2007 you said India and China were on the expensive side - do you hold that view still? If not, what has changed?
In view of the recent corrections, none of the markets are now expensive.
What kind of tension can you identify between the performance of emerging stock markets and that of the underlying economies? Don't they sometimes take different paths, and markets get on too much of a roller-coaster? How about now, say for the Asian markets: haven't India and China both been exhibiting unrealistic surges in their markets?
Stock markets tend to be more volatile than their respective underlying economies. Therefore, when the markets come down dramatically it could be a good opportunity to buy, especially if the economy is stilldoing well.
What's your view on global liquidity? We keep reading that there is a fundamental tightening because of the credit
crisis - do you agree?
We believe that liquidity will increase in view of the action taken by the US Federal Reserve as well as high foreign reserves held by emerging markets.
The Gulf countries are flush with money because of oil prices, and we are seeing more and more investments around the world from companies here. How would you assess such moves? What can be the role of the Gulf countries in globalisation?
The Gulf countries are going very well and are investing globally. We do not see any end to this flow.
What is your current outlook for the markets of the Gulf (GCC) region in turn? Do you think the valuations in these countries are reasonable, as we see more and more Western and international institutional investors coming in?
We maintain a positive outlook for the Gulf region in view of the good valuations and growing interest from investors in the West, as well as high flow of funds from within the region.
Islamic finance investment is growing rapidly, but still is very small when compared to conventional finance. What's your take on Islamic finance investment vehicles? Are you considering any fund in this regard?
Islamic finance investments do have a place in the wide range of financial instruments offered, but they require a great deal of sensitivity to religious restraints. We currently do not have any funds in this area.
