Due to political and economic uncertainty in countries like Ukraine, Turkey, and Venezuela, investors have been fleeing emerging markets in 2014. However, one noted emerging markets portfolio manager believes there are still plenty of buying opportunities.
Mark Mobius, Executive Chairman of Templeton Emerging Markets Group, oversees nearly $50 billion at work in emerging markets. In the first of a two-part interview with Talking Numbers, he says some political hotspots right now may offer hope to investors looking to jump in sooner rather than later.
So far this year, investors have been doing otherwise; emerging markets exchange traded funds (ETFs) have seen redemptions of $10.6 billion, with $8.4 billion of that total redeemed in the month January.
One country where Templeton owns a lot of assets is Ukraine; the fund had about $7 billion of the Ukrainian government's debt at the end of 2013, making it the country's largest bondholder. Despite several days of violent protests which left more than 80 people dead and the country's ousted president Viktor Yanukovych in hiding, Mobius is not worried about Ukraine's future stability.
"Overall, our belief is that Ukraine is in somewhat of a sweet spot in the sense that we don't believe their country is going to fall apart," says Mobius. "We believe that it is going to move closer to the European Union [and] they are going to keep friendly/good relations with Russia."
"This change is going to mean less of a society ruled by oligarchs and more of a society ruled by European rules and regulations," he says. "That's the future of this country."
Another country with a leader under fire is Turkey. Tapes purported to be of Prime Minister Tayyip Erdogan instructing his son Bilal on how to disburse 30 million euros (about $40 million) to a few allies. Two months ago, a few Erdogan cronies were arrested in a corruption scandal. Several months ago, Erdogan faced millions of anti-government protestors who took to the streets of Turkey. Mobius believes Turkey still has some advantages, and even its current scandal may have a bright side.
"I think Turkey has got an incredible number of excellent businesses run by very, very capable businessmen," says Mobius. "Every country has some degree of corruption. But, in Turkey, it's gotten a little bit out of control. The good news is that this news is out and there will probably be some changes made as a result of that."
Mobius thinks that improved technology – cellphones, the Internet, and camera phones, for example – are opening up what's happening in emerging markets such as Turkey.
"Overall, in the emerging markets generally, information flows are getting more and more intense. People are learning more about what's going on," says Mobius. "The transparency is getting much better and that's always good for us."
Half the world away, Argentina's financial crisis is testing the once-popular president, Cristina Kirchner. The Central Bank of Argentina's inability to prop up the peso led to a huge devaluation of nearly 20% in the currency a month ago. Nonetheless, Mobius sees prospects with Argentinian companies that export or with a global presence.
"There are a number of companies in Argentina that really don't do business very much in Argentina itself," says Mobius, who cites pipe-maker Tenaris and steel-producer Ternium as two such examples. Both companies trade on the New York Stock Exchange. "There are some companies that, as a result of this political situation in Argentina, look attractive."
At the moment, Argentina's political situation is not good.
"There's no question on a domestic front, it's a pretty bad situation and we just have to wait and see what happens," says Mobius. "It looks like we're at the end game with the Kirchner Administration because things are getting very, very tight there."
Though Argentina has not officially defaulted, Mobius believes it is already just about there given the currency crisis.
"Essentially, they are in default already," says Mobius. "There's no question about that. So, I think we can just assume that they are in default."
Countries in troubled debt situation institute tougher exchange controls, leading citizens to rush to assets rather than hold a devaluing currency.
"Prices of stocks, of property, of any good that people can hang on to will go up because they're escaping inflation that's coming down the pike," says Mobius. "We've already seen that. The government finally realized that, 'Oh, yeah, we do have 30% or 40% inflation.'"
To see the first part of the two-part Talking Numbers interview with Mark Mobius, watch the video above.
- Mark Mobius