Mobius on Emerging Markets - Hardcover

Mobius, Mark

Hardcover

ISBN 10: 0273622846 ISBN 13: 9780273622840

Publisher: Ft Pr, 1996

Synopsis

An introduction to the realm of emerging stock markets discusses the challenges, risks, and rewards facing potential investors, and outlines strategies, techniques, and investment tips

About this title

About the Author

Mark Mobius is Managing Director of Templeton Asset Management, Ltd., and President of seven renowned Templeton emerging market funds, including Templeton China World Fund, Inc. He directs analysts based in Hong Kong and Singapore and manages emerging markets portfolios of over $5 billion. He has spent over 20 years working in Asia and has extensive experience in econometric research and analysis. Mobius was named "Investment Manager of the Year" in 1992 by the Sunday Telegraph, and "Closed-End Fund Manager of the Year" in 1993 by Morningstar.

From the Back Cover

Emerging markets are growing at a phenomenal rate. Their stock markets, however, are growing even faster and global investors now realize that they cannot avoid exposure to emerging markets if they want to survive in the battle for investment returns.

Mark Mobius, the undisputed king of emerging markets, has written the definitive book on emerging markets. He introduces their particular investment prospects and challenges and their risks and rewards for potential investors. He describes the key emerging market regions and individual markets and outlines the strategies and techniques that investors can use. Finally, he gives you insight into what is necessary to be a successful investor in emerging stock markets.

Reap the benefits of Dr. Mobius' golden rules for spectacular returns: The Emerging Markets Investors Creed. Also, benefit from the field which reveal a wealth of practical observations and investment tips from global markets.

For the new investor this book offers and introduction to one of the most interesting investment arenas in the world today. For the professional, it gives an insight into the philosophy and investment strategies of the Reigning King of Emerging Markets.

"Mobius is the ultimate road warrior ... the industries best known name in international investing."

—USA Today

"Dr. Mobius is tops for knowledge and experience about emerging stock markets."

—Sir John Templeton

"Mark Mobius is the reigning king of the emerging market funds."

—The Wall Street Journal

"If you're wondering what's going to happen next in the world's emerging stock markets, you might want to listen to what Mark Mobius is saying."

—Los Angeles Times

"The reigning guru of emerging-market fund managers."

—Washington Post

Reviews

This comprehensive handbook for investing in stock markets of emerging economies is written by the president of numerous mutual funds, including the Templeton Emerging Markets Fund, which claims to have averaged a 23% annual return in its eight-year history. Through spectacular improvements in education, life expectancy, technology and financial stability, maintains Mobius, countries once called "underdeveloped" today offer opportunities comparable to buying land in the U.S. during the 1800s. Beginning with the demographic, technological and ideological shifts that, in his view, expand economic conditions, he analyzes the opportunities and risks involved in investing in countries like Malaysia ("the success story of the decade"), Lebanon (Beirut is "a future Hong Kong") and Russia (where post-Soviet privatization "augurs well for the development of capital markets"). Mobius applauds "market-oriented reforms" like minimal regulation and low capital gains taxes. Among specific investment strategies, he recommends buying directly on the emerging stock markets as well as purchasing shares in emerging-market mutual funds, including his own. He also addresses political, financial, regulatory and other risks involved in such investments. This upbeat, if technical, description of emerging markets is punctuated with Mobius's highly personal commentary on his research trips around the world. 35,000 first printing.
Copyright 1996 Reed Business Information, Inc.

Mobius is not nearly so well known as fellow superstar investors Peter Lynch and Warren Buffet; nonetheless, he manages 33 mutual funds for Franklin/Templeton Advisers and specializes in the riskier categories of emerging markets and developing countries. Although his funds did not fare so well in 1995, their average return over the last three years was 33.9 percent, and his Emerging Markets fund saw a 78.2 percent return during that period. Mobius has been profiled in Bill Griffeth's Mutual Fund Masters (1995), but here he completely spells out his philosophy of emerging markets investment. He identifies macroeconomic trends, discusses emerging markets in Africa, Asia, Latin America, the Middle East, southern Europe, and formerly Communist countries. He also explains how he evaluates stock picks and analyzes various categories of investment risk. Highly recommended for larger investment collections. David Rouse

Excerpt. © Reprinted by permission. All rights reserved.

Preface

This book grew out of the desire to introduce investors to the exciting, and rewarding, realm of emerging markets. I hope that both laymen and professionals will find the subject of interest. For the layman the book gives an introduction to one of the most interesting investment arenas in the world today. For the professional, it gives an insight into how one emerging markets investment manager views these markets and the philosophy he applies when investing in such markets.

In this book I try to define emerging markets, review their history, provide profiles of investors who should invest in emerging markets and reasons why; a description of specific emerging market regions and some individual markets; an outline of techniques and strategies that can be used by emerging markets investors; and finally, insights into what I believe is necessary to be a successful emerging market investor. As much as possible, I have tried to give a comprehensive view, but the rapid changes taking place in the developing world could make each sentence obsolete the day it is written.

The most significant challenge facing emerging markets today is fluctuating levels of investor confidence. When emerging markets were being pushed to new highs around 1993, investors were willing to ignore all the problems inherent in such markets, problems which normally would intimidate investors, such as political instability, lack of infrastructure, and discrimination against foreign investors. Sure enough, once prices reached a plateau and then began declining, the negative news became more salient. In this book, I want to encourage investors to look at emerging markets as more than market index highs and lows. Instead, I want to guide the international investor into a long-term, patient, development-centered view of emerging markets, which takes into account the nature of economic and industrial growth in newly developed countries.

Stock markets in emerging economies are growing dramatically faster than those found in developed countries. The market capitalization of emerging markets constitutes only about one-tenth of the total global market capitalization at this time. But the growth rate of the emerging markets capitalization is double that of the developed markets. Moreover, there is considerable scope for that growth rate to be sustained well into the future. While the ratio of market capitalization to gross domestic product (GDP) in higher income countries typically averages over 90 per cent today, the corresponding average for emerging markets is around half that figure, with the majority of emerging markets falling below the 25 per cent market capitalization to GDP ratio. This means that the stock markets themselves in emerging economies have lots of room for expansion at the current growth rate before they reach any kind of ceiling on that growth. The disparity in growth rates is compelling. Without an appreciation of why it exists, one may miss the importance of emerging markets altogether.

Why are emerging markets growing so rapidly? The reasons include: better investment returns; faster national economic growth; increasing number of listed companies; improved stock market infrastructure; and more disposable income to invest on the part of citizens within emerging markets. All of these factors are working together, creating a dynamic which pushes up the value, the volume and the capitalization of emerging stock markets. So, let's look at them in more detail.

First, faster economic growth. Since, in the long term, stock markets reflect the underlying health and development of the economies in which they reside, the faster growth of the emerging economies means that the whole stock exchange index value is carried upward on the wing of national economic development. Further, the rapidly rising prices of emerging market stocks in real terms have not only been because of overall greater economic performance in these countries, but also because individual companies are able to expand their earnings faster than their developed market counterparts. Greater demand for the limited amount of stock available on emerging counters, fueled by this solid performance, further exerts pressures which lift share prices.

Second, the number of new companies listed on emerging market stock exchanges is growing faster than in the developed nations. Privatization of government enterprises is resulting in many more stock market listings. Former family-run companies have over generations achieved a size, status and change that permit them to become listed public entities. And the sheer number of companies that can be sustained by the burgeoning economies of Asia, Latin America and Eastern Europe means that listings are destined to multiply.

Sources of investment capital in emerging markets are also multiplying. Pension systems in emerging markets, partially as a result of state-owned enterprise privatization, are being reconfigured to permit participation in the domestic equity markets. Higher incomes for workers in emerging economies mean that a greater proportion of take-home pay can be allocated to savings and investment. Add to this pool of domestic money the return of substantial flight capital, once driven away by Draconian government regulations but now attracted by relaxed government regulations and tempting returns on local bourses. Finally, foreign equity investors from the United States, Japan and Europe in search of diversification and higher returns are feeding their funds into the overall demand for emerging market shares.

Technical enhancements in emerging markets are also contributing to market growth. Areas such as stock exchange regulation, settlement and trading systems, and custodial services are all being upgraded. Many emerging stock markets started life as exclusive clubs for the wealthy few—this has been abruptly replaced with egalitarian, open market practices which are attracting a wide audience. These changes have come about often because the old structures and customs did not meet the new and expanded requirements of the growing national economy. Settlement and trading systems have long represented a major bottleneck to developing a capital market. Today, a greater commitment to efficient practices such as central registration, clearing and depository systems is in evidence.

These four forces—surplus investment capital, new listings, generous company earnings and enhanced technical capabilities of local stock exchanges—are the foundation of emerging market growth today. Emerging stock markets represent one of the keys to the development of market economies and thus a vital element necessary for improvement in the lives of people living in the lower-income areas of the world. I hope that this book makes some contribution towards an understanding of this emerging markets phenomenon.

The book may also serve as an introduction to the practice of foreign investing in general. I believe that the better one appreciates the risks inherent in emerging market investments, the more likely one is to benefit from the upside and skirt the danger areas. A large portion of this book is devoted to an explanation of what one is embarking upon when investing in lower income countries. The picture is not all rosy. There are risks of every kind—political risks, currency risks, company or investment risks, broker risks, settlement risks, safekeeping risks and operational risks.

A section of the book has also been reserved for investment strategies and techniques specific to emerging market investing. This area of investing is not as well-documented as is investing in, say, government bonds. Nor are the investment techniques necessarily the same. In emerging markets, the analysis of systemic conditions is of much more importance than in other markets. One may take for granted rules of disclosure, secure custody, or even dispute resolution mechanisms like an impartial judiciary—investors in emerging markets can take no such comfort in the prevailing systemic environment of most emerging markets.

Over the years, there have been many emerging market investment participants each contributing knowledge and experience to the field. Professionals such as Antoine Van Agtmael and David Gill were among the original team at the International Finance Corporation who formulated many of the concepts which nudged the emerging nations towards capital market development. Barton Biggs and his associate Madhav Dhar at Morgan Stanley have done much to foster acceptance of emerging markets investing, particularly among institutional investors all over the world. At Capital International, David Fisher launched the first major privately placed emerging markets fund. As one of the original global investors, John Templeton led the way for US global investors by venturing into the emerging market of Japan in the 1960s. Tom Hansberger at the Templeton organization conceived of the viability of a widely distributed, stock exchange listed, emerging markets fund for global investors.

The Franklin/Templeton Group, under the able leadership of Charlie Johnson, has expanded the scope of emerging markets funds since the original listing of Templeton Emerging Markets Fund, Inc. in New York, the Templeton Emerging Markets Investment Trust Plc in the UK and the open-ended Templeton Developing Markets Trust. Since then, there have been numerous new emerging market fund offerings and growing interest in such investments, with benefits accruing to both investors and the world's emerging market countries.

Additionally, emerging market investing tends to involve a large team of experts. It would not be possible to manage all of the Templeton emerging market funds without the able team of professionals with which I work every day. The image of Mark Mobius as a one-man show is fallacious. I'm not capable of managing all the emerging market funds alone. The Franklin/Templeton organization consists of over 4,500 professionals, many of whom are involved in an entire complex of activities which go into successful emerging market fund management. These activities include not only research and analysis, but also fund accounting, custodial relations, corporate action facilities, pricing, performance tracking, legal monitoring, risk analysis, diversification assessment and a number of other critical activities. Most important is investor service. Every week over 2,000 telephone inquiries arrive at the Franklin/Templeton offices. These calls are important because they give staff an opportunity to explain our investment philosophy.

Although I am the spokesman for the award-winning Templeton Emerging Markets Team, I am supported by a capable group of emerging markets specialists, in addition to many consultants stationed around the world. Of course, in this book, I take upon myself the responsibility for all errors of fact and/or omission.

Much of this book's philosophical leanings and deep conviction in the ultimate value of emerging markets stem from ideas first enunciated by Sir John Templeton. This book is an opportunity to recognize his revolutionary vision and early influence on my approach to investing.

This book deals with my passion, emerging market investing. However, one never works in a vacuum and over the years my efforts have been substantially aided by an army of analysts and researchers. More specifically, I'd like to show my appreciation of their dedication by acknowledging Tom Wu, Allan Lam, Zita Ng, Eddie Chow, Dennis Lim, Ong Tek Khoan and others in our global offices for keeping me on the road and in the right country.

My writing team included Angus Barclay, Alister Hill, Susan Forester and Mervin Lim. Financial Times/Pitman Publishing provided us with a first-rate and accommodating editor, Richard Stagg, who nurtured the process and kept the whole project on track without being obtrusive.

And finally, I'd like to thank the millions of individual investors who have placed their funds with Templeton over the years. Their long-term commitment of investment capital is a key factor in enabling companies to grow, markets to expand, and countries to pull themselves and their citizens out of poverty. Let's keep that virtuous circle turning.

Edition details

• Publisher: Ft Pr
• Publication date: 1996
• Language: English
• ISBN 10: 0273622846
• ISBN 13: 9780273622840
• Binding: Hardcover
• Number of pages: 364