Interview: Investment guru Mark Mobius

Mark Mobius is widely regarded as the world’s top emerging markets investment guru. On a trip to Dubai, he talks exclusively to Arabian Business about the sell-offs in 2014, why he thinks media gets it wrong, and his faith in Middle Eastern stocks.
Mark Mobius is the executive chairman of Franklin Templeton Emerging Markets Group.
By Ed Attwood
Sat 15 Mar 2014 10:38 AM

Much like the strip that bears his name, Dr Mark Mobius’s career seems never-ending. Variously dubbed ‘the Bald Eagle’, ‘the Pied Piper of emerging markets’ and ‘the Indiana Jones of the investment world’, the executive chairman of Franklin Templeton Emerging Markets Group has spent the last 25 years steadily circumnavigating the globe, hunting out stock picks in developing countries.

In that period, the assets under his management have leapt from $100m to over $45bn (Franklin Templeton’s full assets under management sit at $882bn), while Mobius’s own ethos and eccentric lifestyle have passed into legend. The sprightly 77-year-old splits his time between the iguana-skin bedecked cabin of a Gulfstream business jet (bought by Frankin Templeton from a Saudi jeweller), the factories of some of the planet’s fastest-growing corporates, and the treadmill of the local business hotel. Mobius has no particular home base (he gave up his US passport and reverted to a German one to make travelling easier) and no family. In short, he has dedicated his life to finding out the best bargains in emerging markets.

Visiting Dubai for a rare full week on the ground, Mobius is dressed in his trademark all-white outfit. When questioned as to where he has spent the last couple of months, he laughs before reeling off most of the countries in Latin America and sub-Saharan Africa. So given his exhausting schedule — where he spends around 200 days a year in the air — how long can he go on for?

“One of the great things about our business is that as long as your brain is working, you get better as you grow older,” he says. “As long as you don’t become too conservative, as long as you keep an open mind, you can probably do a better job because you’ve got that experience.

“So you can go on into your 80s — John Templeton [the man who founded one half of Franklin Templeton and who originally hired Mobius] went on until he was 80 plus.”

In order to work out which companies make the best investments, a typical day will see Mobius and his team visit anywhere between three to eight firms. Each company will already have been vetted solidly by the Franklin Templeton team, who will try and draw up a five-year record of audited reports. Each visit takes roughly two hours, and includes interviews with management.

 “The kind of questions we ask are, how do you count your earnings, and what is your plan for the future?” Mobius says. “Body language is also a good reason to do person-to-person interviews, and you can see where they are, what the factory looks like, so you can read a lot into what’s happening. Obviously the company is going to try and give you the best picture, so you have to talk to other people as well.”

Mobius may have a few more years left in him, but the opening months of 2014 have undoubtedly  provided him with something of a headache. As the US Federal Reserve began its bond-tapering programme, capital flowed out of emerging markets — many of which have huge deficits. The MSCI Emerging Markets Index dropped by over 6 percent at one point in early March, before gaining some ground to stand at 3.6 percent down last week. More than $12bn vanished from emerging markets stock funds in January alone, according to EPFR Global. Combined with the sell-off has been media chatter about a possible hard landing in China, the world’s second-biggest economy.

“I would say that the news flow is very, very short term and can be quite misleading,” Mobius says. “There’s a lot of alarmist talk about China and the fact they’ve had the first bond default. But people don’t look at these things from the local perspective. A simple question would be: ok, China has had a bond default, how many bond defaults has the US had?

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“It’s China moving towards a market economy, which is what the leadership has said they want to do. They’ve said they want to move towards market prices, and when you do that, you’re going to have problems. They’ve still got a lot to do, a lot of infrastructure to build.

“You will see more failures as a result of this move towards a market economy, and you’re going to see more consolidation because a lot of industries that shouldn’t be in business need to be taken out one way or the other, and that will result in mergers, acquisitions, that sort of thing.”

When questioned as to whether the market sell-off is a concern, Mobius points out that the world has seen this kind of crisis before.

“In the context of the percent of the assets, and the assets under management, it’s smaller than it was before,” he says. “You must remember we started out with $100m in 1987 and we’re now up to over $45bn, so we can lose $200-300m, no big deal. I think that’s true of the industry as well.”

One thing that the chairman does warn of is extended volatility throughout the rest of the year, exacerbated, he says, by the higher number of exchange-traded funds (ETFs) being formed and the trend towards high-frequency trading.

“If something starts moving, then high-frequency trading gets on the trend and you have a huge amount of money going in,” Mobius says. “And then there’s derivatives — you must remember that derivatives are now valued at $600 trillion, which is 10 times more than global GDP. So that’s why when they’re talking about a tapering in the US, this is meaningless.

“What does tapering mean? It means you’re slowing down your printing money; it doesn’t mean stopping, or selling assets. In addition, the US is only one central bank. The Chinese are printing more money than the US, the Japanese are now doing that, then you have Europe and other central banks around the world.

“Again, people focus on this one thing, and act on the basis of this one thing — honestly a small variable — and that affects everyone globally.”

In February, Mobius told Bloomberg that he wasn’t yet buying emerging market stocks, but it seems that he’s now back in the market just a couple of weeks later. As a whole, he says “if you take the general indicators, the index average, forward price earnings ratios and so on, emerging markets are cheaper than the US or other markets”.

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“Yes, we are buying,” he adds. “Frontier countries are the most interesting, including in this part of the world. I would also say China, Russia and India. Some of the stocks in Brazil have come down substantially, so they’re quite interesting.”

In a recent interview with a British TV station, Mobius picked Thailand, Russia and South Africa as his top emerging market picks. When asked about his top frontier market picks, he doesn’t hesitate before rolling out Ghana, Kenya and Vietnam. Two years ago, Franklin Templeton launched a high-profile Africa fund, which Mobius says is doing “fine”. He also points out that the fund has investments in Zimbabwe, Ghana and Mozambique and is currently looking at Cote D’Ivoire, either through direct or private equity investment.  In terms of sectors, the fund is concentrating on consumers — so products and retail, for example — in a bid to take advantage of higher per capita income and the rise of the middle class.

When it comes to the Middle East, where the fund has roughly $2bn in investments, Mobius is particularly bullish. In May, the MSCI decision to upgrade the UAE and Qatar from frontier markets to emerging markets will take operational effect, with analysts claiming that about $400m will flow into UAE markets and $500m into the Qatar Exchange. Mobius says that the overall trend is positive, but warns not to expect too much when the upgrade happens in May.

“The difference is that there’ll be a lot more interest in these markets, and prices will probably do well going forward,” he says. “Although a lot of times when these changes are taking place, the impact is already factored in. People have already taken their positions and markets may even go down when the official announcement is made.”

Last year, the Dubai Financial Market was the world’s second-best performing stock market, doubling in value over the course of 2013. This year, it has continued its remarkable rise, soaring by around 23 percent. Meanwhile, the Abu Dhabi Exchange has risen by 50 percent over the last six months, with both bourses regularly hitting five-year highs and appearing to be unaffected by the emerging markets sell-off happening elsewhere around the globe.

The rapid growth has led to an assumption that UAE stocks are already over-valued. Not so, says Mobius, who says there’s also a particular sector that still has some way to go.

“Believe it or not, there’s still good value in property,” he says. “I think a lot of the property companies learned lessons and are being cautious in the way they operate. They’re not sticking their necks out and building projects that are not pre-sold, and there’s a lot more forward planning. So in that sense there’s actually a good opportunity.”

In line with rules that prevent him from investing his own wealth in equities, Mobius has instead turned to property, buying up real estate in various global hubs such as Thailand, Hong Kong and Singapore. He’s also put his money where his mouth is when it comes to Dubai property, investing in the Downtown area of the city at the bottom of the market in 2010. That move turned out to be a canny investment, given that prices rose by an average of 22 percent last year alone. So is now a good time to sell?

“I get an email every day from my broker asking me whether I want to sell or buy something else, so it’s certainly an active market,” he laughs. “The immediate thought is that it’s a good time to take profits, but I don’t think so. I’m not saying that prices are going to keep on going up, but they probably won’t go down substantially given the trends you see here. So no, I’ve no plans to sell.”

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Outside the UAE, the chairman also likes the look of Saudi Arabia, by far the largest economy in the Arab world. The Tadawul All Share Index currently represents just over 40 percent of the MENA region’s cumulative market cap, and has been growing steadily alongside its UAE counterparts. But a ban on foreign investors means that overseas fund managers can only access Saudi stocks via exchange-traded funds. Although there has been plenty of chatter about that ban being removed, there is still no clear timeline.

Right now, the fund has allocated around $800m into Saudi stocks, but Mobius says a move to open up would encourage far more liquidity.

“It would be double what it is now, easily — the amount of money going in would be double,” he points out. “Saudi Arabia is the largest place where we have investments in the Middle East. But it’s a limit because when our directors sit down and look at counter-party risk, you’ve got a problem because if you’re dealing with a middle man, you’re afraid they could go under.”

“The consumer companies [in Saudi Arabia] are incredible — you’ve got wonderful consumer products companies. You’ve also got retailing companies. It’s a big economy and there’s a lot there, beyond the oil and gas.”

Of the total $2bn that the fund has in the MENA region, about another $800m is allocated in the UAE, with the most of the remaining $400m invested in Qatar, Kuwait and Egypt (in that order). Mobius says that stocks in Egypt “have come down and are cheap” and is clearly putting his faith on the size of the Egyptian economy and its long-term demographics.  Elsewhere, he says he “wants to get back into Libya” — a smaller bourse with a market cap of only $3bn and 11 equities listed — and also indicates that “we would be very eager to get in” to Iran, if the US-led sanctions programme is lifted in the near future.

Speaking in a previous interview, Mobius had said that money was not a motivating factor for him. So what drives him? Is it the need for new information, or just a determination to beat the market?

“I think it’s just that my interests are very varied,” he says. “I enjoy learning new things, and learning about new companies, and also we’ve got a terrific team. It’s like a family, so it’s nice to get together with them and to work with them.

“It’s a challenge; you’re constantly being challenged every day to perform and you’re on a treadmill trying to keep up — it’s too difficult to get off.”

Mark mobius on...

His biggest challenge

“The biggest problem in our business is that as we are looking at data, we are always tending to look through the rear-view mirror. And if you’re driving a car, that’s not a very good idea. You don’t know what’s coming, so you have to make reasoned guesses as to what you think might happen in five years’ time.

“The challenge that we have is that our clients are looking at one year, or maybe six months. At most, three years. If they don’t like your three-year performance, they’ll probably get rid of you. So the biggest challenge we have is not only finding good investments, but convincing people to be patient.”

Why he has succeeded where others have failed

“Once we’ve made a decision we stick to it, unless something earth-shattering takes place. We stick to it and we continue to buy the stock, even if it’s going down, so that our average cost stays low. Then, when the price recovers, which we think it will, then we make a lot of money. So patience is very important. The second thing is that we’re constantly reviewing. We cannot buy a stock unless it’s been reviewed in the last six months. So we often won’t be caught off guard by some new events that can impact the company.”

His best-ever investment

“There was one stock in China, China Transmission, which does gears for wind power. And that was a private equity investment we made. When we took it to the market it went up by 17 times, and that was after two years of investing. That’s the kind of thing you’re really happy about.”

His future ambitions

“The problem with our business is that it’s so all-consuming, you don’t have the time to do anything else. So for example I would love to relearn to play the piano, but I have no time. I would love to learn some languages in depth — like Chinese, for example — but I have no time. Business-wise the ambition is to grow assets under management.

“The other ambition is to have a bigger network of offices around the world — we’d love to have an office in Nigeria or Kenya, for example.”

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