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Notes from Mark Mobius
23 марта, 22:07

Why Things Aren’t What They Used to Be in Emerging Markets

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The prospect of stabilizing commodity prices and improving corporate earnings has helped rebuild investor interest in emerging markets over the past year. But returning investors may find the constituents of today’s emerging markets are very different from those of the past. I’ve invited my colleague Carlos Hardenberg to share some of his experiences of how emerging markets are not just emerging but evolving, too. Carlos Hardenberg Senior Vice President and Managing Director Templeton Emerging Markets Group When we look at the emerging-market companies in which we invest today, they are worlds away from the companies we were analysing a decade or two ago. The landscape of emerging-market corporations in general has undergone a significant transformation from the often plain-vanilla business models of the past that tended to focus on infrastructure, telecommunications, classic banking models or commodity-related businesses, to a new generation of very innovative companies that are moving into technology and much higher value-added production processes. Furthermore, we’re starting to see the establishment of some very strong globally represented brands which originate from emerging-market countries. Back in the late 1990s, when I was starting out in the emerging-market investing world, technology-oriented companies made up only around 3% of the universe, as represented by the MCSI Emerging Markets (EM) Index.1 Even six years ago, information technology (IT) represented less than 10% of investable companies in the index.2 Much has changed since then. Today, around a quarter of the MSCI EM Index is in the IT sector, which includes hardware, software, components and suppliers. And while much of this activity is originating in Asia, including Taiwan, South Korea and increasingly China, we are also seeing similar developments in Latin America, Central and Eastern Europe and even Africa. The IT sector can be a difficult space to understand and value. Business models are rapidly changing as they adapt to the shifting demands of consumers, and respond to new environmental requirements. Thus, one needs to spend more time understanding and evaluating individual companies before investing in the right stocks, also based on desired risk tolerance. Currently, we have identified opportunities among some larger-sized companies, but tend to generally favour mid-sized companies we think have the potential to outgrow the market as a whole. We look for companies we believe have the ability to adapt more efficiently and are more flexible in adjusting to a fast-changing environment, run by flexible and well-incentivised management teams. The Value of Active Management in Emerging-Market Investing While there has been a considerable evolution in the emerging-market investing universe over the last decade, we remain adamant in our belief that emerging markets remain an investment asset class in which active management should play a vital role for a number of reasons. Emerging markets tend to have their own business rules and regulations which affect companies, corporations differ largely in their attitude towards minority investors, governance standards vary significantly and local intricacies determine consumer trends and habits. We often need to develop fairly close relationships to gain a better understanding of business prospects and find successful management teams that respect the rules. We think these factors could be an important consideration as attention returns to emerging markets on the back of the generally improving performances we have seen in these markets recently. After more than three years of languishing at depressed levels, earnings in emerging-market companies are showing signs of recovery, and that is reflected in the attitudes of companies and their management as well as in their financial data. Recently, on a trip to Dubai, my team and I met a range of companies from Africa, the Middle East and other emerging markets, which were far more confident and open in sharing their outlook for the next 12-to-24 months. Even in regions that are still going through a phase of adjustment and rebalancing, we see improving visibility and increasingly evident robust underlying economic conditions such as low debt, stabilizing commodity markets, reduced currency volatility and improving consumer confidence. After a relatively bleak period for emerging markets, it seems that many of the factors that have attracted investors to the asset class, including stronger earnings growth, higher gross domestic product growth levels and far more attractive consumer trends, may be coming back into play. Carlos Hardenberg’s comments, opinions and analyses are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. Important Legal Information All investments involve risks, including the possible loss of principal. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. ____________________________________ 1. Source: MSCI. The MSCI Emerging Markets Index captures large- and mid-cap representation across 23 emerging -market countries. Indexes are unmanaged, and one cannot directly invest in an index. They do not include fees, expenses or sales charges. See www.franklintempletondataservices.com for additional data provider information. 2. Ibid. Investment Adventures in Emerging Markets - Notes from Mark Mobius Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."

16 марта, 23:31

South Africa: Key Issues and Challenges

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As I’ve previously written, I had the opportunity to visit South Africa recently and meet with a number of executives at companies there, as well as talk to people and observe various trends. It’s important to note that we at Templeton Emerging Markets Group pursue an active, bottom-up approach to investing. Even if things look bleak overall in a country, there are always potential opportunities to be unearthed. If we believe a company’s fundamentals appear sound and long-term prospects bright, we will invest where we see value potential. With that in mind, I would like to outline some of the key issues South Africa’s economy is facing that we are watching as investors. Education One of the most important areas of concern in South Africa is education. Without an educated population, a country cannot progress not only in terms of economic development but also because of political development. In South Africa, just like in other parts of the world, parents have a strong desire to see their children progress and have a good life; hence, families are willing to make sacrifices for education. Unfortunately, the government has not been able to supply enough classroom spaces for those of school age and many existing government facilities in low-income areas offer poor-quality education. Part of the problem is tied to budget constraints, but there are also administrative and corruption issues. Corruption Watch, a non-government organization, said that between 2012 and 2015 it received more than 1,000 reports of school principals who had stolen cash from school bank accounts.1 It also reported school principal posts are so lucrative they are bought and sold. As a result of these problems, a thriving private-school market has emerged in South Africa. One private-school firm we visited had more than 100 schools and was expanding rapidly, with more new schools opening each year. Given capacity and quality issues in government schools, as well as a lack of schools in newly developing areas, middle-class families are seeking to enroll their children in lower-cost private schools in greater numbers. The school personnel we spoke with said even poor parents would sacrifice a substantial portion of their income to send their children to these schools, in an attempt to get them the best education possible. Some of the families lived in wood and corrugated steel shacks with no running water or inside toilets. The firm’s management has been working on a “plug-and-play” model where schools can be established all over the country with a centralized head office that manages information technology, curriculum materials, site locations and overall management. Also looking at the government schools, I learned the range of quality varies greatly. Driving through one of the high- income neighborhoods of Cape Town, I saw a beautiful school with excellent buildings and all kinds of sport facilities. I learned students attending that school scored among the highest in academic standards in the country. However, other government schools have overcrowding and very low standards. A school’s local governing body can charge additional fees to students to maintain certain standards, facilities, etc., which means the quality of education is better in wealthier neighborhoods, where families can afford high fees, than in poor neighborhoods where families can’t. At government schools, teacher quality and training is seen as a problem, and apparently, it’s not uncommon to find teachers with only a 10th-grade education themselves teaching students in grade 12. This is a legacy of the so-called “bantu” education system during apartheid years, which neglected teacher training for the black population. With the tremendous influence that education has on unemployment and economic advancement, we hope that this area sees some progress so even underprivileged children have access to a good education. Immigration A major challenge and opportunity for South Africa is immigration from other parts of Africa, with refugees seeking asylum from persecution or simply trying to find a way to make a living in one of Africa’s richest economies. This includes many illegal immigrants. Competition for jobs means tension and violence between the refugees and local communities—along with poverty and crime. Middle- and upper-class South Africans are major clients for security services and gated communities. While it’s difficult to make direct comparisons, the private security industry in South Africa—with some 9,000 registered companies and more than 400,000 private security guards—is among the world’s largest on a per-capita basis and employs more than the local police.2 However, crime cannot be attributed only to immigrants and a general lack of law enforcement is also a factor. Immigration can have a positive impact and, as we have seen in other parts of the world, immigrants have made tremendous contributions to the economy and culture of the countries they have entered. Infrastructure and Inequality South Africa’s economy is the second largest in Africa after Nigeria but with substantially better infrastructure. It boasts a relatively high GDP per capita compared with other countries in Sub-Saharan Africa, but it also has extremes of wealth and poverty. Hundreds of tin and scrap-wood shacks lie in the shadow of multimillion-dollar mansions with incredible ocean views. The Gini coefficient, a measure of income inequality, ranks South Africa as one of the world’s most unequal societies.3 The importance of African neighbors is highlighted when we look at southern Africa’s electric power situation. Situated adjacent to Namibia, Mozambique, Botswana and Zimbabwe, South Africa has the advantage of sharing power resources with those neighboring countries. In Zimbabwe, a huge power plant built on a gorge of the Zambezi River supplies power to South Africa in times of shortages, while South African excess capacity is supplied when its neighbors face shortages. Labor Issues The government’s Black Economic Empowerment policies have drawn criticism from some economists, because although it has resulted in some individuals becoming wealthy, it has not addressed the broader masses. Nevertheless, black empowerment is a key government initiative. Restrictive labor regulations and a lack of skills and educational development have contributed to large-scale unemployment, which remains problematic. Several challenges have plagued the South African mining industry in particular over the past few years—a key driver of the... Investment Adventures in Emerging Markets - Notes from Mark Mobius Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."

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13 марта, 05:09

South Korea’s Presidential Impeachment

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South Korea’s constitutional court decided to uphold the parliament’s impeachment of President Park Geun-hye amid a corruption scandal that has plagued the president and her adviser, Choi Soon-sil. An election to replace her is to take place within 60 days. Despite the allegations and her low approval ratings, Park still had supporters, and tensions have been high. The impeachment ruling was definitely not a surprise to me as the degree of anger regarding the behavior of President Park meant that the legislature seemed to have no choice but to impeach her. South Koreans have been particularly harsh when it comes to presidential corruption and abuses of power. Several South Korean presidents in the not-so-distant past have been jailed or gone into exile—one was even driven to suicide. President Park’s impeachment has important potential implications for the South Korean economy and market. Although the country has very strong Confucian traditions that have made it difficult to confront people of higher status, there has been movement toward reform and change in the society as a whole, and not only in government. For example, in one case, a South Korean airline co-pilot was unwilling to confront the chief pilot about problems because of the chief pilot’s superior status, with devastating results. One can also point to the continuation of family control of the Korean chaebols (conglomerates), where control passes down from father to sons, even though the family may not have majority control of the company. It is this system that I think could be reformed or dismantled as a result of the recent presidential corruption scandal. Since the major chaebols are so important within the South Korean stock market, moves to reform the system could have major implications for the market. A weakening of the chaebol system could give an opportunity for smaller companies to grow and prosper without being dependent on the chaebols. The impeachment ruling in South Korea does not have a major impact in terms of our investment strategy in the country or region. We are bottom-up investors and continue to look for what we view as potential investment bargains in all sectors and all companies. However, if we see the chaebol system weaken, we anticipate a greater focus on small- and medium-sized companies, which we would expect to realize faster growth. What’s happening in South Korea offers some broader potential implications, particularly for other countries with problems of corruption in the political arena. For example, prosecutors in Brazil took inspiration from Italian prosecutors who had been successful jailing corrupt politicians. While these scandals are unsettling and can create market volatility, they also offer opportunity for positive change. Our analysts located in South Korea report the decision to impeach the president has been welcomed, and the immediate market reaction has reflected optimism. There is a feeling that Korea is moving in the right direction. It will be interesting to see how the presidential election in two months plays out, particularly in regard to chaebol reform, which is an opposition-party focal point. Mark Mobius’s comments, opinions and analyses are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy. Important Legal Information All investments involve risks, including the possible loss of principal. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Investment Adventures in Emerging Markets - Notes from Mark Mobius Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."

10 марта, 20:01

South Africa’s Slow Progress

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I recently had the opportunity to visit South Africa, which has seen its fair share of challenges over the past few years. Arriving in sunny Cape Town with its beautiful views of the Atlantic and Indian oceans, spectacular Table Mountain and invigorating weather, I found it difficult to become too negative about the country, at least from a traveler’s perspective simply because the people are so friendly and because the integration of so many cultures living and working together make me optimistic. Cape Town sits at the southern tip of Africa, and is just one corner of a tremendously diverse nation. There are 11 official languages in South Africa: Afrikaans, English, Ndebele, Northern Sotho, Southern Sotho, Swati, Tswana, Tsonga, Venda, Xhosa and Zulu. I had just finished reading Roger Crowley’s “Conquerors: How Portugal Forged the First Global Empire,” which tells the story of the intrepid, ambitious and aggressive Portuguese explorers like Bartolomeu Dias who, after the deaths at sea of many of their compatriots, were finally able to reach and pass around the tip of South Africa in 1487. Portuguese King John II named that tip the Cape of Good Hope (which eventually became Cape Town) because of the fortunes they expected to find ahead in the East Indies. In the 1600s, the Dutch East India Company overtook the Portuguese and established resupply posts for their ships in the Cape area. The Dutch-style homes are testament to how favorable they found the place. Afrikaans is actually a dialect stemming from Dutch settlers, sometimes referred to as “kitchen Dutch.” By the start of the 1900s, Britain had won full control of the country, and South Africa’s gold and diamonds created many fortunes. Traveling via train from Pretoria to Cape Town, I stopped at the historical De Beers diamond area, where millionaires were created almost overnight in the late 1880s for those lucky few who discovered large diamonds there. My colleagues and I were able to see the “Big Hole,” an enormous crater in the ground that was dug out over the years by hand. Two brothers (Diederik Arnoldus De Beer and Johannes Nicolaas De Beer) had owned the land and rented out plots where diamond hunters could dig. Eventually, Cecil Rhodes (who became famous for the Rhodes scholarship, among other things) purchased and consolidated all the mines and became one of the world’s richest men. There are, of course, many books and articles about South Africa’s history and apartheid, a legacy the country still grapples with. The African National Congress (ANC) spearheaded the struggle to end apartheid, and by the 1990s, apartheid laws were abolished and the ANC’s most notable political prisoner, Nelson Mandela, was released from jail. I had the opportunity to meet President F.W. de Klerk around that time and heard him describe the very difficult time he had reconciling his own party to the change. The meeting with President de Klerk was in his office in Cape Town and it was clear at that time that he and Mr. Mandela did not agree on a number of issues and he was quite frank about it. But his tolerance and patience shone through the challenges he was facing. His openness and strength of character made me confident that the political transition would work. Since then, the country has become known as the “Rainbow Nation,” not only because of its multicultural diversity but also because of its tolerance. For example, South Africa was one of the first countries to legalize gay marriage. The ANC won by a massive majority in South Africa’s first universal elections in 1994, and has continued to win subsequent elections. Unfortunately, the government change has not substantially improved the economic situation for the majority of people previously denied political and social freedoms; unemployment levels hit a 13-year high of 27% in 2016.1 Poverty remains prevalent, and in 2014, the United Nations Human Development Index of South Africa ranked the country 116 out of 188 countries and territories. The country has failed to significantly improve its standing since the 1990s.2 The ANC’s previous dominance is beginning to crack amid South Africa’s lack of economic progress. The Economic Freedom Fighters (EFF), founded by the radical Julius Malema—former president of the ANC’s Youth League who was thrown out of the ANC—has been rising in popularity. If South Africa’s economic situation doesn’t improve, attracting the young and unemployed could make the EFF a more potent force. Opposition parties have been gaining control of key cities, and their strength has increased when they are able to better provide services such as water, power and public transport. Since taking office in 2009, Jacob Zuma’s administration has been plagued with scandals and allegations of nepotism. One political blunder was the appointment of a finance minister many saw as unqualified—who was then quickly replaced after a dramatic market reaction. Despite setbacks, the ANC still supports Zuma, and it seems that he will be able to survive his second and final term, which ends in 2019. Some analysts say that over the next two years, the ANC will likely become increasingly subject to competing factions, resulting in government paralysis and potential for further downgrades in the country’s credit ranking. The country’s economic growth has also suffered, although we are seeing signs of improvement on the horizon. Economic Growth South Africa has been lacking any real growth drivers over the past year, and estimates for 2017 gross domestic product (GDP) remain lackluster, albeit slightly better than in 2016. The International Monetary Fund is projecting growth of 0.8% this year, while the South African Treasury predicts growth of 1.3%.3 On the fiscal side, the government is trying to manage the deficit as best it can with finance minister Pravin Gordhan at the helm, but the slow economy and a small but highly taxed base makes it harder to grow government revenues. Revenue is dependent on a healthy tax base, but the percentage of households receiving at least one social grant increased to 45.5% in 2015 from 29.9% in 2003.4 Higher food and fuel prices ignited inflation... Investment Adventures in Emerging Markets - Notes from Mark Mobius Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."

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01 марта, 02:33

A Travel Transformation in Emerging Markets

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I recently penned a blog on opportunities within leisure and entertainment in emerging markets, including the travel industry. With improved infrastructure and more access to reasonably priced flights, more travelers have been able to explore exotic locations they had previously only read about or seen on television. And, it is not just those in developed markets that are seeing the sights—many people living in emerging markets have more discretionary income available to enjoy leisure travel, too. Traveling to and within emerging markets is now far easier and faster today than ever—in some places, gleaming airports and train stations even rival or surpass those of developed markets. When I first started doing research more than 40 years ago, air travel simply didn’t exist in many developing countries. There were few airports and far fewer airlines. Airplanes were also less efficient and could not travel the distances they achieve now. Infrastructure on the ground was similarly lacking, with poor roads and limited or no trains. One research trip I took to Indonesia back then offers an example of how difficult it was to get from place to place. My aim was to study soap manufacturing there, which required me to cover the entire country from the north of Sumatra down to the southern tip of Bali. There were few direct flights and travel involved small planes, buses, taxis, water ferries, motorcycles and even bicycles! My journey was often very exhausting before I even started my work. I started in Medan and traveled to Palembang and other parts of Indonesia to visit the soap factories, often on bumpy dirt roads. There were not many hotels in the modern sense, so I stayed at traditional Indonesian inns (called losmen) which were small facilities, often an extension of someone’s home. Upon arriving in Bali, I discovered my passport was still at the losmen in Surabaya. In those days, it was customary for the losmen or hotel staff to take a guest’s passport and keep it until departure. In this case, they had forgotten to give it back to me. In my rush to get to my next destination, I forgot to ask them for it when I checked out. Losing my passport could have been a major disaster, but fortunately, the great kindness and hospitality of the Indonesians ensured its safe and swift return to me. The police in Bali were nice enough to help me call the losmen in Surabaya, and they sent my passport to Bali on the next bus. I had to delay my travels one day to wait for it to arrive, but I was so thankful to have it back, as I would not have been able to proceed without it. Today, growing numbers of visitors from around the world are able to enjoy Indonesia’s many attractions and travel more easily around the country than I did back in the day. The government has prioritized tourism, and it seems to be paying off—Indonesia jumped to 50th in 2015 from 70th in 2013 in the World Economic Forum’s Travel & Tourism Competitiveness Report.1 While more investment in infrastructure is needed in Indonesia, air travel has widely expanded. I can now visit several Indonesian companies in one day and use my own mobile phone to call for assistance or make arrangements in most parts of the country. Tourism is important for Indonesia as well as many other countries in the Association of Southeast Asian Nations (ASEAN).2 For example, travel and tourism directly or indirectly accounted for nearly 30% of Cambodia’s gross domestic product (GDP) and more than 20% of Thailand’s GDP, as of 2015.3 It’s important to note that economists have found tourism has a great impact on a wide swath of the population through what they call the “multiplier effect.” That is, tourist dollars reach directly into the retail and hospitality parts of the economy where many people in the middle- and lower-income groups are working. Chinese tourists are venturing outside their borders in greater numbers and are a key part of tourism growth in Asia and other parts of the world. In 2000, nearly 10 million Chinese tourists visited ASEAN countries, but by 2015, the number had grown to 78 million.4 The combined ASEAN destinations accounted for 21% of Chinese outbound visitors in 2015.5 That being the case, it’s worth looking at some travel and leisure trends and developments in China. Travel In and Out of China The expansion of the travel industry in China is quite remarkable. During the National Day holiday in October 2016 (also referred to as “Golden Week”) more than 590 million domestic trips were made nationwide in China, which was up nearly 13% from the same time in 2015.6 Total tourism spending reached RMB 421 billion, up 14% from the previous year, and the Chinese spent a record amount of money on shopping and food during the holiday week, too. The Chinese aren’t only traveling domestically during their holidays, either. Morocco was cited as a hot destination for Chinese tourists during Golden Week last year, and this year’s Lunar New Year saw Chinese travelers flock to other countries in Asia as well as to Europe and North America. Since 2004, China has seen double-digit growth in expenditure every year, leading the world in outbound travel.7 Decades ago, leisure travel was unheard of for most Chinese citizens. Today, many Chinese consumers have more disposable income for travel and leisure. In 2001, just 3% of China’s population was considered middle income, but by 2011, that figure rose to 18% of the population.8 In absolute terms, that means more than 200 million people crossed the middle-income threshold.9 While China boasts the world’s largest middle-class population in absolute numbers, it is still below the global average in terms of percentages. Nevertheless, per-capita disposable income has been on the rise in urban households, up some 165% from 2006 to 2015, reaching 31,195 yuan (US$4,551).10 According to an Economist Intelligence Unit report, by 2030, 35% of China’s population (representing around 480 million consumers) is expected to meet its definitions of... Investment Adventures in Emerging Markets - Notes from Mark Mobius Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."

16 февраля, 21:08

An Emerging-Market Evolution

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The way investors think about emerging markets has been evolving—along with the markets themselves. One thing we at Templeton Emerging Markets Group emphasize is that one can’t consider emerging markets as one asset class; the opportunities are very differentiated between regions, countries and markets, with different fundamentals shaping them. Here, I’ve invited Stephen Dover, managing director and chief investment officer of Templeton Emerging Markets Group and Franklin Local Asset Management, to share his view of how emerging markets have changed over time, how he thinks investors should think about them, and where he sees potential opportunities ahead. Stephen H. Dover, CFA Managing Director Chief Investment Officer Templeton Emerging Markets Group and Franklin Local Asset Management I think emerging markets are appropriately named—they are indeed emerging and have changed over time. With these changes, I believe the way people both think about and invest in the asset class also should evolve. One example of the evolution we have seen is in regard to market capitalization (market cap). In 1988, when the MSCI Emerging Markets Index was first launched, just two of the 10 countries in the index—Malaysia and Brazil—represented more than half of the index’s market cap.1 At that time, the entire market cap of the index was about US$35 billion, representing less than 1% of the world’s equity-market capitalization. 2 If we fast-forward to 2016, there were 23 countries in the index, and the market cap had grown to US$4 trillion, representing about 10% of world market capitalization.3 The mix of countries in the index has also evolved over time. In terms of country weights, today, India represents 8% of the MSCI Emerging Markets Index and China—which wasn’t represented at all in 1998—is nearly 27% of the index today. Meanwhile, Brazil’s representation is much less today, at only 8%.4 What constitutes an emerging market has also changed significantly over time, but the waters in emerging markets have not always been very clear. South Korea has been the subject of some debate in this regard. MSCI includes South Korea in the emerging-markets category, while another index provider, the FTSE Russell, considers it a developed market. This issue is quite important, as which countries are in which category and at what percentage in the indexes help determine how many investors position their portfolios. We have seen countries shift in and out of emerging-market status over time. For example, in 2013, MSCI reclassified Greece from developed to emerging-market status, and in 2016, MSCI announced Pakistan will be reclassified this year as an emerging market from frontier status.5 It really boils down to how one defines “emerging market,” and there is some disagreement about exactly what the criteria should be. MSCI and FTSE have their own criteria for inclusion in a particular index, including explicit requirements for market size and liquidity, a country’s openness to foreign ownership, foreign exchange and other aspects. If you were to follow the World Bank’s standards as to which countries are classified as “high-income” to determine developed-market status, you’d wind up with a very different set of constituents than the index providers—for example, Qatar’s per-capita income ranks above that of Australia, Denmark and the United States.6 That said, we at Templeton Emerging Markets Group are active managers and not confined to a particular benchmark classification or index weighting when we make our investment decisions. We employ a bottom-up approach and focus on the fundamentals we see in individual companies. We may even invest in a company that is located in a country considered to be developed—if the bulk of its profits come from emerging markets. Emerging Markets—Taking a Bigger Piece of the World’s Pie While emerging markets currently represent at least 10% of the world’s stock-market capitalization (based on MSCI indexes), in our various discussions with investors, we have found most have a smaller percentage of their portfolios invested in emerging markets. And worth noting, the 10% figure represents the traditional MSCI indexes—other measures of emerging-market capitalization show emerging markets more broadly represent an even higher percentage. We also have found that even though the world has become much more globalized, many investors still exhibit a “home-country bias,” investing solely within their own borders even if markets elsewhere look more promising. We see room for growth in the emerging-markets realm—and a great potential opportunity for diversification that many investors aren’t even considering. We also see many potential opportunities within frontier-market countries, many of which aren’t even included in global indexes. These markets represent a smaller subset of emerging markets that are even less developed, and include most countries on the African continent. Looking at other measures, we can see just how important emerging markets are to the global economy. Today, emerging markets represent nearly 50% of the world’s gross domestic product (GDP) measured in nominal terms (nearly 60% when using purchasing-power parity) and account for nearly 80% of global GDP growth.7 Changing Economies Emerging markets have also undergone structural changes. Over the past three decades, emerging markets largely achieved their phenomenal growth through exports—and many people have associated these markets with commodities. While many emerging-market countries still rely on exports, these economies are radically changing. As recently as 2008, commodities and materials stocks constituted 50% of the components of the MSCI Emerging Markets Index. Today, that category represents about 15% of the stocks in the index. To us, what’s really exciting about this shift is that it opens up many more investment opportunities that are focused on consumption and services. Many investors may not realize that some very sophisticated information technology companies are based in emerging markets. In 2008, information technology (IT) companies represented about 7% of the MSCI Emerging Markets Index, and today, the sector represents 24% of the index—in fact, the top four constituents by weight are IT companies. Consumer/consumption-oriented stocks represented 7% of the index in 2008; today their weighting is 17%. So it is really not accurate to say emerging markets are pure commodity plays anymore, even though many people still consider them to be... Investment Adventures in Emerging Markets - Notes from Mark Mobius Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."

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10 февраля, 00:25

Art, Entertainment and Leisure in Asia

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Happy Chinese New Year to all my friends and followers! There’s no question it’s a big holiday for leisure and entertainment. Last year, retail and dining expenditures for the Lunar New Year came in at 754 billion yuan ($US115 billion), according to China’s Ministry of Commerce. This is substantially higher than spending for the US Thanksgiving holiday and “black Friday,” the biggest shopping day of the year in the United States. As many families and friends not only in China but also elsewhere in Asia celebrate the holiday with food, festivities and travel getaways, it belies the misconception some Westerners still have that manufacturing and low-wage exports are the main economic drivers of emerging markets. In fact, domestic demand is generally the bigger economic driver in emerging Asia and also in some other regions—and could help insulate some of these countries from external shocks. This shift toward a more domestic orientation has been going on in China in particular for quite some time, fueled by improved education, rising wages and higher productivity. Other emerging-market countries have seen a similar shift, with entertainment and leisure activities benefiting, along with areas of conspicuous consumption. For quite some time, movies produced in the United States (Hollywood) have depended upon international sales when revenue at home has been disappointing. Today, China, India and other countries in and outside of Asia are beginning to compete. The “Bollywood” name has become globally recognizable with an annual output of more than 1,000 films, which is double that of Hollywood,1 although Bollywood’s revenues are much lower and only about 15% of which come from international sales.2 The low cost of producing animation in India and other Asian countries has added another dimension to the film industry that could spur further growth. While the focus here is on Asia, these trends are occurring in other emerging markets too—we’ve seen the rise of “Nollywood,” Nigeria’s booming film industry. While India may be the most prominent in Asia’s film industry, there are other countries to watch in this space. Indonesia’s President Joko Widodo recently removed a ban on foreign investment in films, so the formerly stagnant Indonesian industry seems likely to sprout. Indonesia—the world’s fourth-largest country by population—has relatively few cinemas and therefore is an attractive market. The market for fine art is also growing in Asia. Today, the market for art is larger in China than the United Sates, with all the major auction houses such as Christie’s and Sotheby’s (in addition to China’s homegrown auction houses) attracting multimillion-dollar prices for both Western and Asian art. Pet ownership and related consumption is also becoming more popular in Asia. Once banned, China now has more than 100 million registered pets,3 most of which are dogs and cats but also includes other animals such as rabbits, fish and long-living tortoises—maybe the hope is that their longevity will rub off on their owners! Some households are spending in excess of US$1,000 per year on their pets,4 not only for food, but also for toys and grooming. The other leisure-related area that has been growing is dining out, particularly “fast food” with many of the famous American and other foreign brands entering the Asian markets alongside homegrown brands. Quick-service restaurants are the name of the game in India and have experienced a compounded annual growth rate of 25%; about half of India’s total population eats out at least once every three months and in bustling urban metro areas, the number rises to eight times in one month.5 With a young population, rising disposable incomes and more women in the workforce, it’s easy to see why the “eating out” culture looks set to continue growing in India. Catering to Travelers—and Spectators   Travel, of course, is probably the most important growing leisure-time industry as a result of lower-cost airline flights and relaxed visa restrictions in many regions. Japan is becoming a major tourist destination for travelers in other parts of Asia. In 2016, Japan saw a record 24 million overseas visitors, with a quarter coming from China.6 Japan has been actively targeting those celebrating the Lunar New Year this year. Its largest retailer announced it would accept electronic payment through China’s most popular mobile-payment app, and car-rental companies in Japan have been working to ease the process for travelers, positioning cars near train stations as well as airports, and not requiring customers to refuel before returning a vehicle. For people living in warm, tropical locales in Asia, the opportunity to see snow in Japan during the winter months—even without leaving one’s own time zone in some cases—is a draw. South Korea is also benefiting from the influx of tourism, also predominantly from China. This is not a huge surprise, as China leads the world in terms of outbound travel, with double-digit growth in travel expenditures every year since 2014. 7 Fitness and spectator sports are also very important leisure pursuits for travelers, as well as those watching in their home countries. Football (also known as soccer) is reaching more and more fans in China; the Chinese Super League attracts tens of millions of spectators watching the game live, online and on television. The amount of money spent on player salaries (namely to recruit foreign players) got so out of control that the General Administration of Sport of China, the country’s chief governing body for sports, recently announced a spending cap. The spectator-sports scene in Asia also includes a whole host of other games including basketball and even spectator video games, with South Korea being the center for such “E-sports.” South Koreans take electronic gaming very seriously as it is a great source of national pride, but the theatrical tournaments have attracted players from both Europe and the United States backed by corporate sponsors—a new type of export that is growing globally. The growth of the middle class and rising incomes in many emerging markets means more discretionary income available for leisure pursuits from cinema to theme parks to new food choices to artwork and... Investment Adventures in Emerging Markets - Notes from Mark Mobius Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."

26 января, 23:43

Celebrating a 30-Year Anniversary

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This month marks my 30-year anniversary with Templeton Emerging Markets Group! The opportunity to open up new emerging markets, learn about new industries, meet wonderful people around the world and most of all be part of the Templeton emerging-markets family has been a real blessing. This anniversary had me thinking about the many ways the world—and emerging markets—have changed over the past three decades. I am known around the world as a pioneer in the world of emerging-market investing, going places many tourists and investors alike often fear to tread. As such, I have been given some colorful nicknames over the years, including “The Indiana Jones of Emerging-Market Investing,” which I actually find flattering. That said, I am not a lone-wolf type action hero. I have had the support and great pleasure of working with a large team over the years and wouldn’t have achieved the success I have had without them. So much has happened over the past 30 years within the markets and our team, including the recent change of Stephen Dover taking over my CIO responsibilities of Templeton Emerging Markets Group in 2016. Even though Stephen has taken on the day-to-day management of the team, I continue to serve as executive chairman and enjoy my work exploring and sharing my views on emerging markets on behalf of Franklin Templeton. I have no plans to stop! I grew up in New York, and when I first graduated from college and went out in search of work, I contacted alumni who I hoped might help me find a professional job. I didn’t directly ask them for a job, but rather, for their advice on how to build a career. They were all gracious and their words still resonate with me. One consultant I visited had a plaque on his desk that I will never forget. It explained the success of his very prosperous firm. It said: “There is no limit to how far you can go as long as you don’t mind who gets the credit.” In a succinct and eloquent way it conveyed the most elemental truth: Your success depends on the success of other people around you, and by helping them succeed you also succeed. Meeting My Mentor: Sir John Templeton In the 1970s and early ’80s, I had been working as an analyst and broker in Asia and traveled periodically to Nassau in the Bahamas, where the legendary investor Sir John Templeton was based. During one of my presentations to the Templeton portfolio teams, he and I first became acquainted. One day he approached me to lead his new emerging-markets team and manage a new emerging-markets fund he was starting. The investment potential of developing markets had been recognized for a long time, but the actual birth and classification of emerging markets as an investment category in a more formal or recognized way probably could be tied to an event in 1986. The International Finance Corporation (IFC), a World Bank subsidiary, engaged in a campaign to encourage capital market developments in the less-developed countries, which had often been given unflattering designations such as “third-world” nations. At that point in time, a handful of institutional investors invested US$50 million in an emerging-markets strategy at the behest of the World Bank’s IFC. A year later, in 1987, MSCI developed its first emerging-markets indexes.1 In 1987, while working for Templeton, our fund became the first of its kind to be listed on the New York Stock Exchange, opening the world of emerging markets to mainstream investors. Back then, we had only a handful of markets to invest in. Today, the team, known as Templeton Emerging Markets Group, operates as part of Franklin Templeton Investments and we invest in more than 60 countries around the globe. When we started managing emerging-market portfolios, it was a difficult time to invest in many respects. Although there were many emerging-market countries in Asia, Africa, Latin America and Europe that looked exciting to us, very few of them were actually open to foreign investment. There were strict foreign exchange controls and limitations, in addition to a plethora of problems with market liquidity, corporate governance and safekeeping of securities. We were there at the start of many exciting developments, which included the opening of many markets to wider foreign investment. In the past 30 years, we’ve also seen the end of apartheid in South Africa, easier access to eastern European economies (including Russia), the opening up of India to foreign investment and, of course, China’s embrace of capitalism and rapid urbanization. Today we can invest in a wide variety of emerging markets around the world, as well as a host of “frontier markets,” a designation given to the lesser-developed subsector of emerging markets, which includes the majority of the African continent. We are very excited about the potential for these frontier countries in the next 30 years, as many are growing at a rapid pace and quickly assimilating the latest technological advancements, particularly in mobile finance and e-commerce. Generally, more youthful and growing populations mean consumer power has been on the rise, with a growing middle class. Keep Asking “Why?” In my investment career, I’ve found that you need to keep on asking the question: “Why?” Why is that person doing what he is doing? Why is that company making those decisions? What is behind them? By asking such questions, I’ve been able to miss a lot of possible disasters. Asking questions can be uncomfortable, but pioneers in any field have to get used to stepping outside the comfort zone. While the markets have changed quite a bit since I first met the late Sir John, our core investment philosophy remains true to his enduring approach. Sir John made his foray into Japan in the 1950s, which at the time, was considered a poor and developing country. He bravely invested there and other places in the world where others were not. He taught me many things, but one thing that I have certainly embodied is... Investment Adventures in Emerging Markets - Notes from Mark Mobius Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."

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24 января, 03:07

China and Shadow Financing

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For the first time ever, the president of China was in attendance at the World Economic Forum Annual Meeting in Davos this month. President Xi Jinping joined a roster of presidents, prime ministers, central bankers, executives and other officials from around the world at this prestigious event, which carried the theme this year of “responsive and responsible leadership.” With China at center stage, I thought it might be appropriate to talk about an aspect of China’s economy that I think many people misunderstand: so-called “shadow financing” or “shadow banking,” which is said to be a significant contributor to China’s growth rate. In simple terms, shadow financing refers to activities outside the formal banking system that perform similar functions. Shadow banks can make financial services (namely loans) more widely available to the public, but since they are not subject to the same regulations, there is concern about the risk they pose to the financial system. The growth of shadow financing is reflective of an overall boom in consumer-oriented products and services in China. The consumer sector in China is one we are excited about in general. Some people believe that shadow financing in China is banking reform gone wrong, and is a sign that banks have been circumventing regulations in order to increase or even protect their profit margins. Critics say that this has resulted in the possibility of much higher amounts of bad debt on the books of the banks. Since the Chinese government considers banking to be a strategic industry, it is a big issue. Shadow banking has been associated with China but is practiced in many parts of the world. There is really nothing “shadow” about the term, since it is actually quite transparent. And, it is not “banking” in the true sense of the word since it involves all kinds of investment products, including mutual funds and private equity. Shadow financing is often called “bank loans in disguise,” because a bank is often at the core of the transaction, for example, offering an implicit guarantee for the various wealth products it sells to the non-banks it engages with. This is similar to the major US banks that have affiliated brokerage-end fund sales organizations to sell various wealth-management products. Shadow banking has been growing in China. Some estimates indicate shadow financing currently amounts to roughly Rmb58trillion (as of 2015), representing 80% of China’s gross domestic product (GDP).1 It started in 2007, when banks were allowed to invest in trust plans, then by 2010 wealth-management products became popular. In 2012, securities, insurance and mutual fund companies entered the market. Are Banking Fears Founded? The fears regarding shadow financing activity are similar to other fears or misconceptions we have found about China, including the fear that the country’s total debt is much greater than officially reported. Some say there is not enough disclosure for retail investors in terms of the risk they are taking, and that they are being misled. Of course, concerns about debt and the financial system are not unique to China. In Italy, for example, many banks found themselves saddled with non-performing loans (bad debt), and some small banks faced restructuring. New European Union rules now require stock and bond holders to absorb losses before a government bailout can be implemented. The fate of Italy’s third-largest bank still currently hangs in the balance. Many consider shadow financing in China to be operating outside the regulated banking system, but the People’s Bank of China, which carries out monetary policy and regulates financial institutions in mainland China, is aware of these activities. Securities regulators are also aware of them. In China, there is generally a lag in financial reform because of the conflicting interests of wanting to have a modern market economy, while at the same time wanting to keep control of it. This is a challenge for China in many areas of the economy, not only in banking. Chinese banks are now among the most profitable in the world, and the government certainly wants to keep it that way in light of the banks’ position as the home of the country’s financial structure. If we look closely at shadow financing that includes various types of wealth-management products such as trusts, mutual funds and other instruments, some critics say these are in fact bank loans in disguise where the banks take the greatest part of the implied risk but use insurance companies, brokers and trust companies as the middlemen. So in effect, the banks are intermediating the shadow-bank products. For example, a wealth-management product may be based on a pool of underlying assets that could be a group of loans, including in risky industries such as mining, property and even local government infrastructure projects. The potential problem with these is that they are not standard to credit assets that might be traded on the interbank or stock exchange markets. They can include bankers’ acceptance bills, letters of credit and accounts receivable. It’s important to note that the G20’s Financial Stability Board 2015 Global Shadow Banking Monitor estimated that China’s shadow financing was about 26% of GDP in 2014, which was much lower than the 59% average for 26 other major countries.2 Therefore, we might say that China is somewhat behind the other major countries in terms of developing a non-bank financial system. Of course its definition of shadow financing may be different for China, but in any case, it doesn’t seem as if this activity in China is way off the norm. Probably the most interesting and major financial development in China has been the growth of trusts. Banks were allowed to have their wealth-management products invest in trust plans, and these trusts have funded government infrastructure and real estate projects. Although there is no legal guarantee for the trust investors, there is a perception that the bank in fact guarantees it. This thinking is augmented by the fact that most of these trust companies are owned not only by banks but also by large state-owned enterprises and local governments.... Investment Adventures in Emerging Markets - Notes from Mark Mobius Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."

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19 января, 02:51

Emerging Markets Q4 2016 Recap: A Wobbly Quarter, but Reasons for Optimism

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Templeton Emerging Markets Group has a wide investment universe to cover—tens of thousands of companies in markets on nearly every continent! While we are bottom-up investors, we also take into account big-picture context. Here, I share the Templeton Emerging Markets Group’s overview of what happened in the emerging-markets universe in the fourth quarter of 2016, including some key events, milestones and data points going back a bit further to offer some perspective. Fourth-Quarter Overview Developed markets outperformed emerging markets in the final quarter of 20161 as expectations of reflationary measures from the incoming administration of US President-elect Donald Trump, solid US economic data and the extension of the European Central Bank’s quantitative easing program beyond March 2017, albeit at a slower pace, raised investor confidence. Emerging markets gained slightly in December, despite the announcement of a rate hike by the US Federal Reserve (Fed). The MSCI Emerging Markets (EM) Index returned 0.3% in December, but for the quarter as a whole, the MSCI EM Index declined 4.1%, largely due to concerns over the US dollar’s surge and an increased possibility of protectionist policies from the incoming Trump administration.2 The US election appears to have had a more limited impact on frontier markets. The MSCI Frontier Markets Index was up 0.5% for the quarter, outperforming emerging markets more broadly.3 Pakistan did particularly well, ending the quarter with double-digit returns in the run-up to MSCI’s announced reclassification of Pakistan to emerging-market status in May 2017. In 2016, emerging markets outperformed developed markets for the first time since 2010. The MSCI EM Index returned 11.6%, versus an 8.2% return for the MSCI World Index. The year witnessed a rotation in style from defensive to value, in part reflecting a turnaround in depressed materials and energy companies, which benefited from increased commodity prices. In December, the Fed raised rates for the first time in 2016. Signaling increased confidence in the US economy, the Fed increased the key interest rate by 25 basis points (0.25 percentage points). Hawkish views from the Fed point toward the possibility of three hikes in 2017. Crude oil prices advanced during the three-month period, as 11 non-OPEC (Organization of the Petroleum Exporting Countries) members including Russia committed to production cuts to curb oversupply in December, following proposed reductions in production from OPEC members in November. Overall, we believe upstream oil companies are best positioned to benefit from higher oil prices, and we remain positive on a number of companies in China, Russia, Thailand, Pakistan and India. However, over the longer term, a higher oil price could result in a potential increase in supply from shale producers as well as a production increase by low-cost producers (for example, OPEC countries and Russia) to support fiscal revenues. Higher oil prices could also lead to a significant increase in drilling activity around the world. Most emerging-market currencies depreciated against the US dollar in the final quarter of 2016. The Mexican peso plunged to a record low against the US dollar in November but then recovered slightly. The worst-performing currency, however, was the Egyptian pound, which roughly halved in value following the liberalization of the currency in November. Geopolitical issues continued to weigh on the Turkish lira, which was down 17% against the US dollar. Country Updates and Key Developments For those who are interested in really diving into the numbers, I am including some country updates that show changes in key economic indicators and measures more recently and going back further. Latin American markets were among the better performers in the final quarter of 2016, supported by outperformance in October. Brazil, Chile and Peru ended the three-month period with positive returns, while Mexico and Colombia lagged, in US dollar terms. Investors in Brazil were encouraged by the approval of key reforms, with monetary easing efforts from the central bank, in order to stimulate economic growth, also proving helpful. Returns in Peru were driven by solid economic data and business confidence, while positive political progress and encouraging macroeconomic data supported the Chilean market. Mexico was the region’s worst-performing market, as concerns of anti-immigration and protectionist policies from the incoming Trump administration weighed on equities as well as the Mexican peso. To counter inflationary pressures from a weaker peso, the central bank raised the key interest rate by 100 basis points (one percentage point). Asian markets declined over the quarter, underperforming emerging markets as a whole. The Philippines was among the weakest performers on concerns that US protectionist measures could adversely affect trade and the country’s significant outsourcing sector. Thailand could see some weakness in economic activity due to the one-year period of mourning following the passing of its king in 2016, but we believe this should only be a temporary effect. Thailand’s stock market saw positive performance in December, supported by the energy and financials sectors. The government’s significant economic stimulus measures, reform programs and infrastructure spending appear to be having a beneficial effect on the economy. In addition, lower commodity prices have helped to moderate inflation, boosted consumer purchasing power and enabled the implementation of reforms and accommodative monetary policies, all of which have supported economic growth. General elections are scheduled for late 2017/early 2018, which could see the return of a democratically elected government. We particularly like the consumer services, health care and tourism sectors, as Thailand remains competitive in these areas. Even though Thai banks continue to face near-term challenges from rising non-performing loans and increasing pressure on fee incomes, we continue to selectively favor better-positioned, undervalued Thai banks. Indonesia and India underperformed amid increased uncertainty following Trump’s victory, and fund outflows. India was further pressured by demonetization measures. In an attempt to fight corruption, counterfeit currency, tax evasion, “black money” and terrorism, the Indian government scrapped usage of the highest denomination INR500 and INR1,000 currency notes from circulation. Accounting for about 85% of the currency in circulation, the liquidity shortage caused by demonetization is expected to negatively impact sectors and supply chains with high levels of cash transactions. These... Investment Adventures in Emerging Markets - Notes from Mark Mobius Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."

05 января, 22:53

Vietnam’s Transformation

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In just a few decades, Vietnam has undergone a dramatic transformation, from an agrarian society to one that has embraced the modern era. Its youthful population and growing middle class have helped drive solid growth—and opportunities for many global investors. This up-and-coming market hasn’t fully embraced capitalism—it remains a Communist state—but it has managed to achieve an interesting balance. There has been a bit of buzz about Vietnam among investors in the past few years, but given the election of Donald Trump as the next US president, the Trans Pacific Partnership (TPP), of which Vietnam would have been a key beneficiary, seems even less likely to move forward. However, new trade deals are in the works—including the Regional Comprehensive Economic Partnership (RCEP), which Vietnam has joined along with nine other members of the Association of Southeast Asian Nations as well as Australia, China, India, Japan, Republic of Korea and New Zealand. And, there could be new, bi-lateral trade deals in the future. Nevertheless, I believe Vietnam remains an attractive destination for both investors and tourists, and we think its future looks bright. I recently had the opportunity to visit Vietnam and see the latest wave of changes taking place. Vietnam has seen strong economic growth, with gross domestic product (GDP) growth averaging just shy of 7% from 2000–2015.1 This economic boom has also boosted consumer buying power. In 1990, gross national income (GNI) per capita was US$910, but by 2015, it had risen to $5,690.2 During my recent trip to Vietnam, I found tremendous opportunities in the consumer sector as a result of this rise in income levels. For example, we visited a dairy company and learned that while per-capita milk consumption in the United States has been above 100 liters per person per year, and in China it was 30 liters, in Vietnam it was only 16 liters. However, that number has been growing very quickly, and it’s no wonder the milk company we visited in Vietnam has seen profit growth every year for the last five years. The company produces fresh raw milk from local cows as well as reconstituted milk from powder, condensed milk, baby formula and yogurt. The company exports its products not only to its neighbors in Asia but also to some markets in the Middle East. Many companies in Vietnam are government-majority owned, but privatization is expanding with plans to publicly list shares of a number of companies in the future. Some will initially be listed on the Ho Chi Minh Stock Exchange’s secondary exchange, the UPCoM, which has less stringent disclosure requirements, but we think eventually many companies will likely be required to list on the main board and institute broader disclosure. We believe the sale of some state-owned enterprises should help lower Vietnam’s rising national debt, but foreign direct investments are strong, and industry and exports are doing well. As services (including tourism) represent more than 40% of Vietnam’s GDP, it is the area we are most interested in.3 Phu Quoc Island To study Vietnam’s tourist industry, my colleagues and I flew down to Phu Quoc Island off the coast of southern Vietnam. We landed at a new, modern airport capable of handling a growing influx of both local and foreign tourists. Local tourists can fly from Ho Chi Minh City for the equivalent of only US$30 to US$50 one way on Vietnam’s low-cost airline. While travel regulations can be tricky and ever-changing, today, foreign tourists can stay between 15 to 30 days without a visa in Phu Quoc, which is a unique concession not available for visitors to other parts of Vietnam. During our stay, we drove and cycled from one end of the island to the other and found a construction boom under way with new hotels, apartments, villas and a spectacular cableway under construction linking the island with other smaller islands. Phu Quoc itself is a large island (574 square kilometers compared with Singapore’s 719), and Vietnam’s government has designated it for tourist development. We drove to our hotel on a new four-lane highway, and as we toured the island we saw construction of a new north-south four-lane highway under way as well. The government has spent over US$1 billion thus far for infrastructure on the island, including more than US$700 million on the airport where we arrived. According to regional news reports, through summer of 2016, the government had approved and licensed more than 160 projects involving a total investment of more than US$6 billion. As a microcosm of the country as a whole, Phu Quoc has seen quite a transformation when we consider its history as a place of refuge. The island was also once a prison camp used during various regimes, from the French colonial period through the Vietnam War. One of the tourist attractions is a prison camp/museum, complete with barbed wire, guard towers, and models of guard soldiers and prisoners. The island is also famous for its fish sauce and for peppercorns; which we saw growing on vines around the island. Tourism is transforming the island’s economy, which had previously subsisted on fishing and the aforementioned peppers and fish sauce. A major Vietnamese developer constructed a huge complex at the northern part of the island, including 1,000 hotel rooms, 1,000 villas, a safari park (apparently one of the world’s largest), a water park and an amusement park featuring many types of roller coasters and other stomach-churning rides. There is also a 27-hole golf course, an international hospital and facilities for what could become a major casino. Another developer is building a complex on the southern part of the island, which includes a spectacular cable car that crosses the sea to neighboring islands. We also saw other new hotels being built along the beach. A pearl farm has also been introduced, so we saw a number of shops promoting the local pearls. Touring the villages around the island we noticed there was still a dire need for better roads and facilities. The influx of tourists and construction of high-end facilities to accommodate... Investment Adventures in Emerging Markets - Notes from Mark Mobius Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."

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21 декабря 2016, 01:18

Emerging-Market Equity 2017 Outlook

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Emerging markets started 2016 on a weak note as equities were buffeted by concerns surrounding China’s economy and falling oil prices. However, as the year progressed, positive factors took hold of investor sentiment, leading to emerging-market strength, which we at Templeton Emerging Markets Group believe offers a robust foundation for emerging-market equities as we look toward 2017. Here, Stephen Dover, managing director and chief investment officer of Templeton Emerging Markets Group and Franklin Local Asset Management, and I present our emerging-market equity outlook for the year ahead. Stephen H. Dover, CFA Managing Director Chief Investment Officer Templeton Emerging Markets Group and Franklin Local Asset Management   Mark Mobius, Ph.D. Executive Chairman Templeton Emerging Markets Group   Solid Growth, with Momentum and Valuation Support Following recent improvements, we expect macroeconomic advances to continue in 2017. This could bode well for top-line growth opportunities and the earnings outlook for emerging-market equities. We believe that, while gross domestic product (GDP) growth in a number of emerging-market countries has been gaining ground, it is likely that over the next few years we could see further relative advances in sizable economies like Russia and Brazil. The economies of these two countries are still contracting, but they are on an improving trajectory and could significantly influence the growth rate of the whole group if they continue to progress. Meanwhile, China’s growth, which has been a key concern for many observers, has shown signs of stability and remains at a strong level compared to most other large economies. In the third quarter of 2016, the country’s year-on-year growth in GDP came in at a rate of 6.7%, which was in line with the pace reported in the previous two quarters. Overall, we expect to see GDP growth for emerging markets in 2017 at a solid and accelerating level, markedly above the rate expected from developed markets. Emerging-market countries are still far behind their developed-market counterparts when it comes to overall GDP-per-capita, and so we continue to expect strong growth prospects over the long term. Additional economic factors are, we believe, important to our expectations for likely further strength in emerging markets. First, as a group, manufacturing economies are generally back into a position of current account surplus, while there has also been headway in bringing down the deficits of commodity-exporting countries. Second, the debt-to-GDP ratios of emerging-market countries are generally below those of developed markets, providing a more stable and, we believe, sustainable economic foundation. Finally, interest-rate differentials between the two groups are wide, giving emerging-market central banks greater flexibility to maneuver, if required, in the future. The “hunt for yield” has been a frequently used term in recent years, yet the issue still remains front and center for many market participants. With low and negative yields on many government bonds globally, we continue to expect investors to look toward emerging-market equities, given the income prospects available. For example, the dividend yield was an eye-catching 2.5% as of October 31, 2016, for the MSCI Emerging Markets Index.1 Year-to-date flows toward emerging markets have been positive, partly due to the attractive income expected. However, this follows three years of outflows, and so further moves into emerging markets could be another of 2017’s trends to look out for. In terms of valuations, the MSCI Emerging Markets Index has traded at a significant discount to the MSCI World Index, for example, on a price-to-earnings-multiple basis. Earnings growth trends have improved markedly during 2016, and we expect this turnaround to continue, with economies and corporate fundamentals across the asset class stabilizing. Sectoral Opportunities and Challenges We believe that companies in the consumer-related and information technology (IT) sectors are particularly attractive in the current environment. Select stocks in the consumer sectors can provide an effective means to gain exposure to emerging-market economic expansion and, in particular, access to growth in spending as rising regional wealth fuels a burgeoning consumer class. IT in particular is becoming increasingly integral and competitive in emerging markets, and, although we are cautious of the recent rapid share-price advances in many of the China-based Internet stocks, we see value in the sector across emerging markets as a whole. Elsewhere, select commodity shares remain attractively valued, in our view, even though oil prices, for example, are currently significantly above their 2016 lows. We remain cautious of China’s banks as non-performing loan recognition dampens our outlook for the country’s financial firms. Like banks, China’s real estate sector has staged a striking turnaround from a lengthy downturn, but we have remained on the sidelines, in part due to risks of overleverage and regulation. A Small but Attractive Prospect We continue to like Asian small-capitalization stocks as they are particularly exposed to the solid growth potential we expect from this region over the long term. This is helped by small-cap companies’ generally greater domestic focus than their larger peers, binding them less to challenging macroeconomic factors at a global level. Their valuations typically reflect the stronger growth expected from the smaller equities, but, given there are thousands of small-cap stocks in Asia, the opportunities to discover mispriced securities are often plentiful. These valuation anomalies usually occur due to market inefficiencies as research coverage for many of these companies can be thin on the ground. US Federal Reserve Policy: A Key Impediment to Emerging Markets? US Federal Reserve monetary policy is still a source of apprehension for many participants in emerging markets. We expect the trajectory of any rate increases to be gradual, although larger- or faster-than-expected US interest-rate moves could dampen sentiment and lead to volatility. Other meaningful tests for the global economy may include geopolitical troubles, currency fluctuations, the United Kingdom’s progress toward leaving the European Union and commodity-price moves. Meanwhile, recent political events in the United States may also test markets; the US presidential election victory for Donald Trump is likely to have many implications for markets around the world, including emerging markets, and may well add to volatility in equities. It is something we will continue to monitor... Investment Adventures in Emerging Markets - Notes from Mark Mobius Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography."