Mark Mobius calls the time favorable to Buy Stocks in Emerging Markets
Last updated on December 3rd, 2018
According to prominent investor Mark Mobius, stocks in the emerging market are appearing “very cheap” now, and that is a buying opportunity.
In recent months, investors have sold their holding in the emerging markets in a significant way, fearing that the financial problems in countries like Turkey and Argentina could sweep to other economies.
The rising oil prices and strengthening US dollar added to the concerns, as they affect the emerging economies with excess of foreign debt and those that are net energy importers.
As a result, the MSCI Emerging Markets Index — tracking large and mid-cap stocks in 24 countries — has fallen by around 16 per cent this year. However, the co-founder of Mobius Capital Partners said that the sell-down has created investment opportunities in the emerging markets.
Mark Mobius said, “At the end of the day, emerging markets equities look very cheap now. It’s time to get in.”
The investor has noticed that some countries are already witnessing a recovery in their currencies and stock prices. He said, it is because the US dollar has started to stabilize, which has reduced the burden on emerging markets to service their debt denominated in the greenback.
Mark Mobius is a seasoned investor in emerging markets. He said that Latin American markets, particularly Brazil, have led recovery in the asset class so far. He also highlighted that while Asia’s rebound has lagged, the region still presents opportunities. Without giving any names, the investor also said that a number of small and medium-sized companies in China are looking “interesting.”
However, he particularly likes India, where growth rates have trounced that of China, and Southeast Asia.
Mark Mobius said, “We’re beginning to look now in Indonesia again, Thailand of course has not done badly — I mean they’ve been in pretty good shape, Malaysia is another area which is going to be very interesting going forward.”
When sectors are concerned, as an investor he focuses on companies in traditional industries like retail, which use technology to enhance productivity. Moreover, he prefers organizations with little debt, strong balance sheets, and those that split their cash reserves between investing for expansion and paying dividend to shareholders. “Dividends are a sign that the company first has cash and also thinks about shareholders,” Mobius said.
However, the risks are also involved. Several experts, including Mobius, have anticipated that by the end of this year, oil prices would touch $100 per barrel, which could be a bad news for emerging markets.
But, Mark Mobius noted that now the level looks out of reach by the end of the year, although added that oil could still hit that price in the longer term. He explained that by the time oil touches $100 per barrel, currencies in emerging markets would have recovered enough against the US dollar. So, if the price increase wouldn’t hurt their finances as such.
Mark Mobius also highlighted that “a real nasty” escalation in trade tensions between the world’s two largest economies is another major risk facing emerging markets. But, the possibility of that happening is also minor.
Mobius said, “If there’s a real nasty increase in the trade war … between the U.S. and China, that can’t be good for Southeast Asia. But I don’t see that happening, I really don’t.” “I think the Chinese are smart enough to know if they give Trump something to go home with, they’ll be a winner in the long term. They may have to give up something in the short term, but longer term they’ll be doing well,” he added.
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