Emerging Markets will outperform Covid, longtime investors, says Mark Mobius

Peripatetic investor Mark Mobius, 84, sees a strong global economic recovery that should finally help emerging markets outperform a decade that has lagged behind emerging markets, despite US tensions with China.

Mobius, once described as Indiana Jones from New Markets, launched Mobius Capital Partners almost three years ago after retiring from a multidecade career at

Franklin Templeton,

where he ran one of the first new market funds. His new company, which oversees $ 220 million in assets, takes a more concentrated approach to the frontier and growth markets he has long invested in, focusing on around 30 companies and actively working to improve environmental, social and corporate governance or ESG factors. and culture.

Barrons caught up with Mobius in Dubai to see how he is positioned for a global economic recovery, why he is not worried about a decoupling between the US and China, and why he believes central bankers’ fixation on inflation is misleading. An edited version of our conversation follows.

Barrons: The new markets have lagged behind the S&P 500 index for about a decade. Why is this their year to surpass?

Mark Mobius: We’ve had a great race [in emerging market stocks], and this will continue. With the average age [of people] in these countries lower than for the developed markets, their recovery [from Covid-19] gets faster. The vaccine helps, of course, but more important is psychology. When people start to feel safe, you will see the economic activity increase very quickly.

Technology is also hitting these markets, especially frontier markets, and it is driving much of this step towards better asset quality and information. The currency is also getting stronger in new markets against the dollar, which in itself is positive. But more importantly, the psychology of a currency revaluation is very strong for investors. The first question [emerging market] Investors often ask if they want to lose money on the currency.

India is the largest country weighting in your portfolio. Why?

India just announced its budget and a series of dramatic changes that will have a major impact on driving economic growth there – including the opening of the insurance market for foreign investors and increased privatization of state-owned enterprises. It’s a great story. We own

APL Apollo tube

[ticker: APAT.India], which manufactures steel pipes and [should benefit from] infrastructure costs. We also own

Renewable systems

[PSYS.India], a software company that works a lot with companies like

IBM,

and

Metropolis Healthcare

[METROHL.India]who do medical tests.

Latin America has been out of the limelight. What are the possibilities there?

Brazil is the place we focus on [on]. We own a dealer

American Laws

[LAME4.Brazil], who has [an online retail] partner

B2W Digital

[BTOW3.Brazil] it corresponds to

Amazon.com

[AMZN]; a software company

Totvs

[TOTS3.Brazil]and [medical diagnostics company]

Fleury

[FLRY3.Brasil]. With lockdowns, distance diagnosis comes to the fore. Once these test companies have your records, they can recommend hospitals, doctors, medications. It is a matter of data collection, which is very important.

Chinese stocks have had some of the biggest gains recently, but there are regulatory issues – Beijing lowering Ant Financial’s IPO and new antitrust measures. What is the risk?

The Chinese government realized that you could not get these internet companies to take over the financial system as they were well on their way to doing. That’s why I think they stopped the IPO. The government was also worried that retail investors could be burned because they also planned to regulate these fintech companies. China is not alone. The United States is watching [regulation]; Europe also looks.

What do you think of the United States’ recent efforts to restrict China’s access to technology?

The United States made a mistake that limited the transfer of technology. If I were sitting in Beijing, I would say, ”

Taiwan Semiconductor Manufacturing

[TSM] Is the biggest [chip company] in the world, and even if we consider it our province, we can not control it.

Samsung Electronics

[005930.Korea] Is next; it’s in Korea. The United States is next

Intel

[INTC]. “What you get – especially now with large semiconductor shortages – is the Chinese working overtime to produce their own chips.

It takes a while.

No questions. TSM is basically a foundry. They perform the physical production, but hundreds of small fabless Taiwanese companies create all the software needed to go into these chips. We own several: Taiwanese

eMemory technology

[3529.Taiwan],

VIN semiconductors

[3105.Taiwan]and

Parade Technologies

[4966.Taiwan]. Return on working capital is very good because all they need are offices and a computer.

What about the risk to Taiwan as tensions between the US and China flare up?

It is a risk we have to accept. These fabless companies have strong ties to

Apple

[AAPL] and

Microsoft

[MSFT] and usually have a base in Silicon Valley to service them so they can still operate without being in Taiwan.

What do you like in China?

We have

Yum China Holdings

[YUMC]. They have made one [good] jobs to improve the way they work. We also own

AK Medical Holdings

[1789.Hong Kong]. There is a lot to do in [developing the healthcare system].

Are you worried about disconnection between the US and China?

I do not think that will happen. The government can say one thing, but companies can say another. They do not have to be in the United States; much creates in Dubai or the Cayman Islands.

Should investors be concerned about the recent pressure to remove Chinese companies that do not comply with US audit supervision?

That would be very easy too [Chinese companies] to meet accounting standards. It’s a matter of pride [for the Chinese government] to refuse to allow these companies [to open their audit books]. And look at the turnover of these companies on the New York Stock Exchange! Do you think brokers will allow these trading conditions to disappear? I doubt it. It takes two to tango: US authorities are likely to give up and the Chinese will adjust their accounts over time.

There is also increasing control over China’s human rights issues, such as in Xinjiang and Hong Kong. How does your ESG approach allow Chinese investment?

We do not look at the macro level in that sense. We know Xinjiang is a problem. We know that human rights are a problem in general. Many people will say that you have to do something about human rights and change society. If we tried to do that, think about how many real democracies there are in the world today, especially in emerging markets. It is very difficult.

We look at each company to determine how they perform on ESG and culture measurements. It’s amazing, over the years since I started investing in China, the improvements we’ve seen. The government has begun to introduce certain ESG standards for these companies, which is a sign that policies are moving in that direction.

Photo by Natalie Naccache

In your latest book, The inflation myth and the wonderful world of deflation, you suggest that the recent concerns about inflation are dispelled. Why?

I would reduce the whole weight of inflation figures. You hear the Federal Reserve say, “Inflation has risen by half a percent; we have to do something, “or economists say,” You have to have at least 2% inflation, otherwise it’s not good for the economy. “This is all insane. Inflation figures are based on a curve that changes every year. If you go back 10 years, the curve is completely different and the quality of the products has changed dramatically. Due to technology we get a deflationary trend , where things are getting cheaper – and it’s accelerating in the new countries.This measure is not a very good way to make policy.

How should we measure inflation?

You need to look at wages and income and measure the quality of life. As an old timer, the quality of my life has improved a lot: I can write an e-mail, or the computer can access all this information – that did not exist when I got my PhD. on my. Prices are rising, but the reason is currency devaluation. Throughout history, there is absolutely no currency in the world that has retained its value.

What does this mean for the dollar’s status as a reserve currency?

The dollar peaked last March and is now down to the 2018 level. You see a number of things here. First, do not underestimate cryptocurrencies. When you think of all the people who do not want their wealth to be revealed, they use cryptocurrencies.

Nr. 2: The dollar is still the largest investment currency, but the euro is the largest trading currency. Much of this has to do with zero interest rates, as does trade finance [in the euro] very attractive. And then you see the yuan come up. China has already entered into currency swaps with a number of countries.

You will find a general withdrawal from the US dollar – not today or tomorrow. It is a slow process. The most critical aspect of the dollar is the extent to which it can be used and traded around the world; it is very important for people. One of the reasons why it is difficult for the Chinese to have a reserve currency is because they want to control it so much, but it is remarkable that it has appreciated approx. 10% against the dollar since the middle of last year. It shows the demand.

Write to Reshma Kapadia kl [email protected]

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