Good morning, Vietnam: Mark Mobius touts frontier markets

Famed investor bullish on the Orient, including hot spots in Southeast Asia

Dec 17, 2010 @ 11:36 am

By Jeff Benjamin

The steady flow of new equity offerings across Asia will be a major force in the performance of emerging-markets stocks, according to Mark Mobius, the Singapore-based chairman of the emerging-markets group for Franklin Templeton Investments.

Of the $460 billion in emerging-markets stock offerings this year, more than half the total assets can be attributed to Asia, he said.

In 2009, more than 60% of the year's $260 billion in emerging-markets stock offerings was Asia-based.

“There are still big opportunities in places like China, India and Thailand, but we're also seeing increasingly more opportunities in places like Indonesia and even Pakistan,” he said.

Even though the emerging markets have experienced tremendous performance over the past few years, Mr. Mobius said the steady flow of initial and secondary stock offerings is creating both liquidity and new investment opportunities.

Mr. Mobius is leading the team managing the Templeton Asian Growth Fund. The $14 billion fund was launched Nov. 1 to give U.S. investors access to a strategy that Templeton has been offering to non-U.S. investors for a decade.

The favored sectors continue to be commodities and consumer-related stocks, according to Mr. Mobius.

In the commodities space, he is investing in companies that are exposed to energy, iron ore, oil and mining.

The consumer side, which he described as particularly attractive in Asia, is a play on the expanding middle class.

“In Asia, you have banks that are being transformed from strictly corporate to consumer banks,” Mr. Mobius said. “We're pretty excited about all that, and we think Americans should be as excited about Asia as the rest of the world.”

In terms of gaining exposure to the emerging markets at this point in the market cycle, Mr. Mobius advises dollar-cost-averaging, because the markets can be volatile.

“If you look at the valuations, you could still say we're in the middle range and there are still opportunities,” he said. “You can justify a relatively high valuation if inflation in those countries stays moderate and interest rates stay low.”

With an expectation for moderate emerging-markets growth next year, Mr. Mobius is starting to pay more attention to the so-called frontier markets, such as Vietnam.

“The frontier markets are now quite hot, and some are very cheap,” he said. “In Vietnam, for example, there is poor liquidity and a strange regulatory system, but the pricing is very reasonable.”

Companies with market capitalizations of less than $2 billion also represent an area of unique opportunity, he said.

However, he added, investors need to approach the space prepared for wild rides.

“There will be major corrections along the way, but you've got to get used to it,” he said. “In this day and age, a 20% correction is not unusual.”

Instead of focusing on the volatility, Mr. Mobius advised “keeping an eye on what's happening on the ground” in the specific markets.

“The opportunity at the beginning of last year was incredible,” he said. “But people didn't want to tough it out until the markets went up 60%.”

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.

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