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Many emerging markets are looking cheap: Mark Mobius

Mobius Capital Partners Founding Partner Mark Mobius joins Yahoo Finance’s Zack Guzman to discuss the current market outlook amid the coronavirus.

Video Transcript

ZACK GUZMAN: But a lot of investors now are asking whether or not that stimulus will lead to this being a full bottom here, as we see stocks rallying to start the week. And for more on that, I want to bring on an investor that has a pretty good track record when it comes to calling when we're all out of the bad news and back in the clear. And that, of course, is Mark Mobius, who joins us now on the Google Hangout, Mobius Capital Partners founding partner and author of the book, "Invest for Good, A Healthier World and a Wealthier You."

And Mr. Mobius, thank you so much for joining us on the show. Of course, you're famous for a lot of things, but for this specific segment I'll point out that you're famous for calling the beginning of the longest running bull market that we saw in US history back in 2009. So from what you're seeing right now, in your mind, is this the start of another prolonged uptrend?

MARK MOBIUS: I think it's a little early to predict that because given the lockdown that we've seen globally in so many countries around the world, the impact of this lockdown on businesses is not going to be seen immediately. Of course, people are making some predictions.

But I believe that once the numbers start coming in, people will be somewhat disappointed. So I think it's probably a little early to predict the next bull market. But I must say that this recovery that we've seen recently is quite impressive. And it also speaks to the incredible volatility that we're seeing.

But you know, when this all started, we went back to the numbers. We took 11 markets, including the US, Japan, and all the major emerging markets and we calculated the number of bear markets-- in other words, a bear market defined as anything increasing-- decreasing more than 20%.

And we found that on the average, these bear markets went down about 50%. And of course, the range was anywhere between 21% to 70%, but the average is 50%. And the length of time it took for the bottom to be reached was a little less than two years, about 1.7 years.

So of course, you know, we can't say that the past is always prologue, but I think, you know, I remember John Templeton used to say the most expensive words in the world are, this time, it's different. So I don't think this time, it's different. I think we probably may be doing-- going to do a double bottom. You know what I mean? Jumping down again and then pushing up again.

So I think the [INAUDIBLE] is still going to be with us. And my personal policy is to say OK, we've seen this incredible decline. Now let's-- you know, we're talking 20%, 30% down. Many stocks look quite attractive. Let's put some money in. Let's put maybe 30% of our cash in and then wait and see what happens and then keep on investing if the market comes down again.

ZACK GUZMAN: Yeah, because that was something that we discussed last week. We had Satori Fund hedge fund manager Dan Niles on the show. And he was raising a lot of the same questions, when we're thinking about, OK, could this be a little bit of a bear rally? We've seen those before. When you think back in history, you can see that.

But he was pointing out that even on a valuation basis, when you look at the averages over the last 30 years or so, you still have about 20% to fall to reach what you're describing there in terms of that 50% downfall, in general, bear markets. But when you look at it, I mean, if you are putting money to work, where would you be putting that money to work here in the idea that we could still come down, but over the long run, you'd still see value on the table?

MARK MOBIUS: Well, the first area, and again, I'm talking to the normal investor that has to be diversified globally. Of course, I'm biased towards emerging markets because many of these emerging markets are looking really cheap. But I would say, first of all, at least 10% in gold, in physical gold, and then the rest in equities. So I don't think a fixed income is where you should be. You should be in equities in this kind of environment.

And of the equities, probably about 30% or 40% in emerging markets. In emerging markets, I would say you've got to start with China, obviously, because they have been able to weather the storm better than most of the other countries. I would look at India as well. Despite all the dire predictions for India, they will pull through. And then you have to look further afield to Brazil. Brazil is come down more than most of the other markets. And some of the stocks, they look very cheap.

Then further afield, here in South Africa, although Moody's has put the bonds for South Africa in junk status, but the reality is that there are a lot of very, very well-run companies here in South Africa that can weather the storm. Turkey, Turkey is-- interestingly enough, Turkey is not in total lockdown. They decided to allow people to go to work and keep the old people at home and keep the young people at home. So that could be an interesting development. And then Indonesia would be another one, and then probably a little bit in Mexico.

BRIAN CHEUNG: Brian Cheung here. So I mean, you have extensive experience in a number of corners of the world. You worked in Asia. You're currently in South Africa. I'm wondering, are there certain types of those developing emerging markets that are maybe poised to rebound at some point, but they might not be able to turn on all the manufacturing because the supply chains are still disrupted around the world, right? I mean, we still have to think about the demand destruction that's still being done by COVID-19.

I'm wondering, does that kind of change the thesis around, if you are investing in those countries you were just listing, specifically what types of industries to be looking at because of the supply chain.

MARK MOBIUS: Absolutely right. That's a very good point. Because you have a situation, let's say in Vietnam, where they're doing a lot in exports, they've done a terrific job in exporting, and they're probably going to be under some constraint. These are the companies that are doing this kind of exporting with the supply chain being locked down because a lot of what they manufacture is really derived from manufacturing in China.

But then you have other companies that are export oriented, but also have a very big domestic market. So for example, in Turkey, there are a number of garment manufacturers that have a very strong domestic market, but also do some export. So they should be doing OK with COVID.

I think the most important thing is that if you look at companies in emerging markets-- of course, anywhere in the world, particularly emerging markets-- is that more and more of these companies are adopting the internet sales channels. And that's something to look at very, very carefully. Because the traditional retail company using the internet can often do very, very well as a result of this new age of participation. So this is what we look for as well.

ZACK GUZMAN: Yeah, and we've seen that. I mean, you could look no further than Zoom already kind of benefiting from this whole surge in work from home. But I mean, when you point out the fear and the uncertainty and why it could be dangerous to say that this time is different, there are a couple of things that have stood out to really say that this is historic.

When we look at it, you can look at how fast we were to enter and exit the bull and bear market measurements here, though, of course, some of those were a little bit arbitrary when you think about a 20% cut-off. More than that, you can look at the-- here in the US, just the just complete collapse when we think about employment here in the country when we got record two consecutive weeks of record unemployment claims.

A lot of people pointing out that sure, you can have this little bump up here, but what about the idea that since we are seeing record unemployment claims, that the recovery might not be as quick as a lot of people are pointing out? How do you square that with the idea that you could be jumping in here at some opportunities, but also be wary of, as you said, potentially a double bottom in terms of where equities go?

MARK MOBIUS: Well, that's the reason why I think is a good idea to keep reserves in cash because I don't think it's over. And I think the point that you're making is very well taken. If you've got millions of unemployment claims, that means a lot of people will not be returning to the same jobs that they had before.

Because if you look at it from the viewpoint of companies, many companies will take the opportunity now, despite the government handouts and the government support, they will take the opportunity to terminate employees. So I think it would be very difficult for these companies to come back to where they were.

And that will take time. That's the reason why I think the recovery may take longer than people expect, unless there is a sort of Franklin D Roosevelt New Deal program, where the government comes in and says, look, we're going to start building bridges, highways, ports, et cetera, et cetera, which I think might be a very good policy for the government to follow. Put people to work.

ZACK GUZMAN: Yeah, it sounds like we've already heard President Trump thinking about that in the phase four deal, when he's talking about, oh, potentially, a big infrastructure spending bill here.

But there are a lot of people saying, oh, what's that going to do in the short-term when we think about people are staying at home, sheltering in place, may potentially be losing their jobs now, getting kind of-- they won't tell you they're getting made whole by the idea that they're getting a $1,200 stimulus check, but at least attempts there to square that away.

And then months down the line, when people can leave the house again, I guess those who are now unemployed, that would be a good thing to boost the economy. But the idea that that would be too far down the line to keep the economy intact now in the short-term, does that not at all worry you?

MARK MOBIUS: Of course. Yeah, I mean, no question. If you're going to do a new deal type program, these are going to take time to get started, unless you really have a crash program. Even with a crash program, you're talking about half a year or more. So absolutely correct. It's going to be a real challenge to get these people back to work.

ZACK GUZMAN: All right, there you go, Mark Mobius telling us it's not safe yet, but potentially some opportunities out there on the table. Be well over there in South Africa, my friend. And please join us again when you've got the time.

MARK MOBIUS: Thank you very much. Thank you.

ZACK GUZMAN: Thank you.