Templeton: Emerging Markets

When Mark Mobius speaks, investors listen. The star fund manager who oversees Templeton’s Emerging Markets trust thinks the liquidity of countries like China, Brazil and India will remain frothy for some time. And in his opinion, the boom in the number of initial public offerings and money coming from hedge funds will push stocks in emerging markets up even further in the next few months.

“We’ve never seen this kind of liquidity before. IPOs like that of the Bank of China are very good for the markets becaus they absorb the flows of money coming in,” Mobius says. “Emerging markets are in much better shape than they were in 1997 when they were having all of those devaluation problems.”

Mobius is a bit worried that emerging market stocks are becoming overvalued. “That’s the big question of course. Are we heading into overvalued territory?,” he says. However, he points to the fact that the while valuations of companies are inching up, they still fall below those of US and European markets. And he predicts that if the political situations remain stable in developing countries, they will remain stable. The narrowing of the spread between the US Treasury and sovereign debt of emerging countries also reflects the confidence of investors.

Mobius is interested in putting money into commodities and into industries that will benefit from the shrinking of the global economy. He also is careful to consider what the consensus view is before picking stocks.

“Industries and countries are converging and good companies are in some of those countries are reaping the benefits,” he says. In his opinion, China represents the most interesting opportunity because of the number of companies doing business there. “It’s just so huge and there’s so much going on,” he says. India has gotten a little expensive. And it’s possible to find a lot of value in Korea, Taiwan, Brazil, South Africa and Russia.

About 19 per cent of the fund is in Brazilian stocks; about 17 per cent in South Korean stocks; about 13.4 per cent in Chinese stocks; about 7.8 per cent in Turkish stocks, about 6.7 per cent in Thai stocks; about 5.3 per cent in South African stocks; about 5.3 per cent in Hungarian stocks and about 5 per cent in Russian stocks. Banks stocks are the most popular holding in the fund, which opened in 1989, comprising about 20 per cent of the portfolio. About 17per cent of the fund is in oil & gas stocks and about 5.5 per cent in construction & engineering groups.

Its top ten holdings include stakes in Hyundai Development, Unibanco, Banco bradesco, PetroChina, China Petroleum & Chemical, Lukoil, Petroleo Brasilerio, SK Corp, Akbank TAS and Gedeon Richter.

The fund has consistently outperformed the emerging markets benchmark in the last year. It reported a 33.9 per cent return against a 29.5 per cent return by the emerging markets benchmark in the last six months, according to data from Standard & Poor’s. In the last year, it reported a 82 per cent return against a 78.7 per cent return by the benchmark.