Euro am Sonntag interview: emerging market guru Mark Mobius: “Investors often miss the best opportunities” message
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by Andreas Hohenadl, Euro on Sunday
Ea peek into the hotel lobby: almost all seats are empty. The group of four could go there in the corner – it is quiet here and the seats are far enough apart. This is important for an interview in Corona times. Mark Mobius, who is undisputedly at risk at the age of 83, looks relaxed. He takes off his face mask after we have taken a seat.
Mobius still gets around the world. But now the well-known emerging market investor has come to Munich rather involuntarily. Because of Corona he was stuck in South Africa, could not fly to his apartment in Singapore, but via a return flight by the federal government, Mobius is of German citizenship, to Frankfurt and on to Munich. There he uses the time for discussions in the Hotel Vier Jahreszeiten.
uro on Sunday: Mr. Mobius, how do you assess the current situation on the markets?
Mark Mobius: We are in a V-shaped recovery. I have been saying for many weeks: there will be a very quick recovery. As fast as it went down on the markets, things are now going up. I guess we are now roughly in the middle of the recovery move.
Are you not afraid that the economy has run too far ahead?
The markets always show what is going to happen in the economy in the future. So if you see a V on the stock market, you know that the economy will follow.
Isn’t caution currently required?
Many investors make a mistake: they wait for the market to return to their old highs, so they miss the best chances of getting stocks cheaply. A Brenmarkt is recovering from its low.
But it could also go deeper …
Those who want to invest successfully should not be put off. After a slump in the market, the market climbs a “wall of worry”, so rises against many fears. If you let yourself be overwhelmed by these fears, you miss out on all possibilities.
Her specialty is the emerging countries. Are you afraid that the Corona crisis will set them back?
A lot can still happen in this crisis that nobody can foresee. But I am convinced that economic development in the emerging countries will continue. Areas such as e-commerce, communication, technology will particularly benefit. Because many emerging markets still have an inadequate infrastructure. In these countries, this is offset by means such as mobile money or online delivery services. I think the emerging economies will benefit from the Corona crisis in the long run.
Initially, however, many of the countries find themselves in financial difficulties.
This is exactly where I see another advantage of the crisis: the governments in many of these countries are often weak, inefficient and corrupt. Now they have to apply for help from the International Monetary Fund and the World Bank. They also get this help. But they have to meet a number of requirements.
And that can bring something in the long term?
Do you know what the President of South Africa, Cyril Ramaphosa, said recently? His political friends are worried that they will become the game ball of international financial corporations. What he meant by this is that his friends, who are corrupt and make money with the state airline and the state utility, are concerned about making a change. For me, that’s good news that reforms are now underway.
The Asian crisis in the late 1990s hit the emerging economies hard. What’s different this time?
During the Asian crisis, many emerging countries had insufficient foreign exchange reserves to prevent a crash. That has changed. The emerging markets were generally in good shape when they hit the corona crisis.
Many are even able to set up aid packages.
The range in the large emerging countries ranges from 1.8 to 6 percent of gross domestic product in additional fiscal measures to stimulate the economy. Even in a country like Egypt, six to seven billion US dollars in aid went to the tourism sector.
Corona remains a major threat to emerging markets.
Many emerging markets have imposed a very strict lockdown. Unfortunately, they took that over from the industrialized countries because they thought that was the way to do it.
Why do you say unfortunately?
Because it was very harmful to their economy. Many of the countries have a young population that can withstand such diseases. You also have to see that in the case of South Africa, the country has already gone into crisis with an unemployment rate of 30 percent. The third has now climbed to 50 percent. This is devastating for people who have to keep afloat as day laborers. I think that was a big political mistake. In my opinion, it was triggered by the forecasts from Imperial College in London, which were initially too high and assumed millions of deaths worldwide.
It was also new territory for the experts.
You know, the difference today to the virus outbreaks earlier is the speed of the means of communication. Today, news goes around the world in a matter of seconds and unfolds its own force. So we got global panic.
After the markets have shaken many fears again: is now a good time for emerging market investments?
Absolutely. The interest rate level in the western states at zero percent is currently advantageous for the emerging countries, because they can get our money very cheaply. But the timing is also good because the investment goals are now very different. What used to be a resource-driven upswing is now an expansion driven by ideas. Take a look at the automotive sector. With the development towards e-mobility, the suppliers are also getting a completely new picture. While German companies used to dominate, the most competitive providers now come from Asia or Latin America. For me that is the silent revolution that has taken place in the emerging countries.
What are your favorite emerging markets at the moment?
To only pick out the bigger ones: China and India. Brazil, South Korea and Taiwan follow. Below on the list Turkey and South Africa.
Do you see the greatest risks in Turkey and South Africa?
Yes, but also the greatest opportunities and the greatest recovery potential.
Which companies are interesting investment targets for your fund?
For example, we invested in a small company in China that was founded by a doctor and his wife. The two have a lot of expertise with knee and hip prostheses. It’s a hard-fought market dominated by Americans, Europeans, and Japanese. The founders nevertheless courageously entered there.
First of all, they established good relationships with the local clinics, hired people with international experience and built up a really good production. Then they turned to 3-D printing to improve manufacturing. And they saw that their prostheses got better and better and outperformed the competition from the USA, Germany or Switzerland. Then Corona came, and China could no longer import from the United States or Japan, breaking the supply chains.
Did the Chinese take advantage of the home?
Yes, the company, AK Medical, quickly gained market share. You will benefit from this interruption in global trade in the long term. The company’s share price has quadrupled. Most recently, they also received certification for the European market. And suddenly a local champion has conquered the international market. We find such companies more and more often.
mostly in Asia, right?
Not only. We also found what we were looking for in Brazil: at a retailer with branches spread all over the country, Lojas Americanas. He decided to also start selling online. Many were skeptical whether this would work. But they proceeded cleverly: They put all young people in the new company and strictly separated it from the old one, so that the employees were not influenced by the prevailing style there. Now they successfully bring the two together and online sales go through the roof.
Doesn’t Brazil suffer too much from its current president?
You read a lot of negatives about Brazil and Bolsonaro. Nevertheless, the country remains an incredibly exciting place for investors. Because it has a large home market and large export markets in the neighborhood. Brazil also has six million German immigrants, mainly from Swabia. They do nothing but think about what there is to invent and improve. Brazil is one of the few emerging countries with such a high level of competitiveness.
Are you thinking of specific sectors or companies?
Yes, absolutely. When you talk to fund managers, when it comes to Brazil, they usually think of the big banks and the mining giant Vale. We think of Brazil as the largest competitor of the software giant SAP. We have invested in it as well as in the two largest and most successful distance learning companies or the largest diagnostic laboratory chain in the country. It also benefits from the current crisis, because the company is also doing corona tests. The country has many inhabitants, a middle-class consumer and a population that wants to move forward. It’s not all bad in Brazil.
Let’s get to another big emerging country: China. Do you see stronger tensions with the USA again?
I see ongoing tensions. But I think China and the United States generally get along well. The Americans may be more impulsive, the Chinese more patient. For me, there is no doubt that Trump has raised issues related to China that should have been raised long ago and that have to do with more reciprocity – which should help the Chinese, because their economy should become a little more open anyway.
Do you think Corona is changing the global economy? Who could be winners and losers?
The losers, as hard as it may sound, will be the Europeans. Too much of Brussels is regulated. And there could be more in the future. Unless Europe gives itself a jerk and reforms itself. Brussels should then take greater account of local regulations and laws.
What are the omissions of the old continent?
Europe, in my opinion, made a big mistake: a country like Greece is still in trouble. Why? Because the Greek banks were all saved with taxpayer money in the euro crisis. You shouldn’t have done that because no one else is learning the lesson. That’s why I’m worried about Europe. The international community must become more dynamic, act more entrepreneurially. One should finance high-speed trains or alternative energies, but not waste the money on bank bailouts.
Mark Mobius, born in New York on August 17, 1936, worked for the fund company Franklin Templeton for more than 30 years, where he led the team for emerging market stocks. During this time and because of his many trips, he earned the nickname “Indiana Jones of investment”. In 2018 he became self-employed with his fund company.
Mobius Capital Partners
In May 2018, Mark Mobius founded Mobius Capital Partners with his former colleagues Carlos von Hardenberg and Greg Konieczny. The company manages the Mobius Emerging Markets Fund (ISIN: LU 184 673 991 7). He invests primarily in smaller companies from emerging markets and the frontier markets and wants to motivate them to better manage their business.
Image sources: Axel Griesch for Finanz Verlag, Franklin Templeton Investments