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Emerging markets: Investing in Russia ‘will be impossible for a long time,’ strategist says

Mobius Capital Partners Founding Partner Mark Mobius joins Yahoo Finance Live to discuss emerging markets and inflation as the Russia-Ukraine war continues.

Video Transcript

JULIE HYMAN: Let's refocus now on what's going on in Russia and the implications for the rest of the globe and implications from an investment perspective. Mark Mobius joins us now, Mobius Capital Partners founding partner, and I think fair to say, a legend in the emerging markets space. Mark, thank you so much for being here. I want to start squarely with Russia here, given the freezing of assets that we are seeing, from an emerging market investment perspective, I mean, how long before you would even be able to-- I mean, leave aside the issue of want to, be able to invest in Russia and take a look at Russia as a potential investable area?

MARK MOBIUS: It will be impossible for a long time. You know, one of the things that happens when you have such things as custodial banks who say we're not going to do any business with Russia, when you have the payment systems closing down, when and if they want to open them again, it takes time. You know this is a big bureaucratic process. So I don't see anybody who wants to be investing in Russian equities or debt not being able to do so for I would say another year. I would be surprised if it's possible.

And of course, we know that this is an ongoing situation, the sanctions will probably get worse. So I think we're going to see a long drawn-out situation. In fact, I call it Russia's Afghanistan. I think Russia is going to be drug into a very, very long term situation, which is not going to be good for Russia but will be good for Europe because it's now putting Europe together.

And it's good for a lot of the other markets around the world. The US market will probably be attractive. And many of the emerging markets have not been impacted, particularly in Asia, Asian markets are moving sideways with the exception of China, which is already down. But generally speaking, you're seeing Brazil actually going up. So it's a very mixed picture. There'll be winners and losers, let's put it that way.

BRIAN SOZZI: But Mark, could we start to see some of those other emerging markets turn south? We've seen a large-- a pretty sizable move higher in oil prices. Inflation in emerging markets remains very high in large part because what's happening in oil markets. Are there other areas overseas that are uninvestable in your view?

MARK MOBIUS: Well, the good news though regarding oil prices is that these emerging markets have lots of alternatives now. And when we look at $110 a barrel, solar, wind, and many other alternatives come into play in a big way. So there are lots of alternatives that we have now that we didn't have 10, 15, 20 years ago.

And you must remember also China and India depend on coal for most of their power, 70%, 80% of their power comes from coal. So higher oil prices are not going to have that much of an impact. Of course, inflation generally is moving up not because only of oil or shortages of oil, but because of the incredible money supply that's been coming into the fore in the financial markets around the world. You must remember money supply in America last year was up 35%. That's the kind of number that brings inflation up in big ways, big time. So the CPI inflation number really doesn't reflect the real rise in prices. Good news is that technology is pushing prices down at the same time.

JULIE HYMAN: Even though that might take a little bit longer than people might like in the short term. I do want to ask another political question with regard to emerging markets. As we know, China has refused to participate in sanctions against Russia. India appears to kind of be wanting to sit it out. Does it matter from an investing perspective how those countries are aligning themselves politically, if not with Russia, certainly not against it, as we are seeing in the Western world?

MARK MOBIUS: Not really. I mean, when we look at these countries, let's say India or China or any of these countries that take a neutral stance, it's really something that's specific to that country. And after all, at the end of the day, we're investing in companies, not countries. So we focus on what a company is doing, how they're surviving, and very often a neutral stance on the part of some of these countries is probably the only practical thing for them to do.

For example, India depends on Russia for a lot of its military equipment. Now the question is, where does India get spare parts if their markets are closed and you cannot get things out of Russia? So this is a challenge for many of these countries who have depended upon Russia for various supplies, not only oil but many other things.

JULIE HYMAN: And I'm curious about China in particular because before this latest focus shifted to Russia, we were seeing, of course, a lot of regulatory pressure in China that had caused a steep sell-off mostly in tech stocks but really broader than that. And then there was sort of a renewed regulatory push more recently that then sent another wave of selling through the Chinese market. How are you thinking about China right now given that regulatory regime that we've seen?

MARK MOBIUS: Generally speaking, I favored the regulatory changes in China because corporate governance is improving as a result of that. And let's face it, you had some of these big companies like [? Kweichow ?] and like Alibaba or other and Tencent, where they had a very big, big hold on the markets and not allowing the small and medium-sized companies to survive.

So I think the regulatory crackdown on some of these big boys is probably a good idea and will make the market better going forward. But in the short term, what it does, of course, is push the index down. You must remember the weighting of companies like Alibaba and Tencent is very big in the index. So when the index goes down then people tend to say oh, God, China is in bad shape. But if you look further down the line to the medium and small-sized companies, many of them are doing very, very well. So generally speaking, I think this is probably going to end in the next-- this year and the market will probably turn around.

BRIAN SOZZI: Mark, you mentioned-- I want to go back to what you said on Russia, that Russia may not be investable for another year. Let's-- why not go bigger here, isn't Russia not investable until Vladimir Putin is no longer in power whenever that might be?

MARK MOBIUS: That's a very good point. Let's put it this way, if Putin left office tomorrow and the leadership in Russia said we're pulling out of Ukraine and we're going to try to make friends with Europe, things can change very rapidly. But as I said, the bureaucracy does not move very fast and it would take months to restore all these payment systems, all the rest of it.

So I think-- but that's a big, big wish. I mean, for Putin to be out of the picture and for Russia to make amends. I don't see that happening any time soon. If it did, then, of course, we're talking maybe about a half a year before we get back into Russia.

JULIE HYMAN: So Mark, just quickly to be clear, you don't see the prospects for regime change anytime soon in Russia?

MARK MOBIUS: No, I don't see at this stage. It will take a longer period of defeat or at least stalemate in Ukraine to make that happen I think.

JULIE HYMAN: Mark, thank you so much for your perspective today. Good to see you. Mark Mobius, Mobius Capital Partners founding partner. Appreciate your time this morning.

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