Emerging markets : the last frontier for «bottom-up» investors
When the global financial crisis brought stock markets crashing down all over the world, people commented that classical portfolio diversification theory had become a waste of time. In a global village the “non-correlation” argument was dead. Dr Mark Mobius, an investment guru with 40 years’ experience in the emerging markets, would disagree. In a light-hearted but thought-provoking speech at the 20th anniversary party of Franklin Templeton Luxembourg, Dr Mobius showed that emerging markets have out-performed the MSCI global index over one year, by a sliver, and with gusto over five years, ten years … almost any period you care to name. And why.
Dr Mobius, Executive Chairman of Templeton Emerging Markets Group, splits the world into three categories: developed markets, emerging markets and “frontier markets”. It is in the last group, which includes Panama, Botswana, Oman, Ukraine and Vietnam to cite just a few, that some of the best performance is to be found. Frontier markets have 17% of the world population but only 6% of GDP. They trail the BRIC markets in penetration of mobile phones or internet usage. Growth potential is huge. Indeed, of the top ten fastest growing countries in the world between 2001 and 2010, all but China are “frontier countries”. It’s worth naming them because you wouldn’t have guessed: Angola, (China), Myanmar, Nigeria, Ethiopia, Kazakhstan, Chad, Mozambique, Cambodia and Rwanda. China is now expensive compared to Vietnam, where the average monthly salary is three times lower.
“There are lots of very interesting countries” enthuses Dr Mobius, in front of a long list that contains some frankly dodgy countries. It requires old-fashioned patience and a dose of bravado to commit funds to these markets, but Mobius and his long-standing team of lieutenants have both. Before dealing you have to find functioning brokers and you have to find out what – if any – regulation exists. “These markets are under-researched” he says. Indeed.
What are the signs he looks out for? Dr Mobius showed a series of fascinating statistics which included rising beer production per capita and falling bicycle sales.
This raises a question: perhaps bicycle sales are the new “hamburger standard”? When sales fall, the standard of living is on an upward trend as people move up to scooters and cars. But when bicycle sales start rising again, does this indicate that a market has “graduated” into the big bad first world of middle-class obesity? ER