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Notes from Mark Mobius
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27 июня, 22:05

China: Building Roads to the Future

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China is forging new global connections and expanding trade and market access in many ways. The country does seem to be opening its capital markets and working to become more transparent. We have seen the success of stock linkages between mainland China and Hong Kong, and recently, a new bond market connection has been announced. I think index-provider MSCI’s recent announcement to include large Chinese mainland shares in its Emerging Markets Index1 beginning next year represents an important vote of confidence and a recognition that China’s growth and capital market size must be taken into account by global investors. China’s ancient “Silk Road” trade route is thought to be traced back to the Han Dynasty more than 2,000 years ago. The importance of silk trading to the region inspired the name of this network connecting land and sea trade routes linking China, Central Asia, the Arab world and stretching into the African and European continents. In 2013, Chinese President Xi Jingping formally announced plans for a modern system of networks including railroads, ports, pipelines and even electronic information highways. The “One-Belt One-Road” (OBOR) initiative aims to transform economic and diplomatic interests in the region, taking shape in the form of investments in the various countries the program encompasses. In 2014, China established a special, multi-billion-dollar fund to finance a variety of infrastructure projects along the OBOR routes, creating new economic corridors. The initiative is thought to be perhaps the largest of its type initiated by just one country. The OBOR currently spans more than 60 countries. The sea-route part of the program includes ports along China’s coast, Hanoi in Vietnam, Kuala Lumpur in Malaysia, Jakarta in Indonesia, Kolkata in India, Colombo in Sri Lanka, Nairobi in Kenya and Athens in Greece, where the Chinese have acquired the port of Piraeus. One indication that the Chinese are putting words into action was demonstrated to me when I recently visited Sri Lanka. Right on the Colombo waterfront was a spanking new giant container port the Chinese had built, capable of handling the world’s largest container vessels. A land-route portion of the project will start in Xian and Urumqi in the West of China, then travel through Kazakhstan and Uzbekistan and Tajikistan in Central Asia, then Tehran in Iran, Ankara in Turkey, Moscow in Russia and Rotterdam in the Netherlands. Of course, a number of other countries such as Pakistan and Georgia will likely be impacted as trade and energy cooperation expands throughout various areas in the region. In mid-May of this year, the Chinese hosted a high-level OBOR summit. A number of new investments were announced at the summit, augmenting what already has taken place since 2013 when the OBOR was launched. At the summit, China pledged more than $100 billion in new investments. Officials also announced that Chinese companies had built 56 economic cooperation zones in more 20 countries. The Chinese are emphasizing investments in the South Caucasus and in Central Asia, as those areas represent a strategic link between China and Europe. Agreements made with Uzbekistan represent just one example of the substantial impact of Chinese investments. The two countries have made numerous, multi-billion-dollar agreements including energy infrastructure and a gas supply contract to China. Transport corridors connect a railway system spanning China, Kyrgyzstan, Uzbekistan and Afghanistan, and also connect to seaports in Pakistan and Iran. At the conference underlining the importance of the Caucasus countries, China also signed a free-trade agreement with Georgia. One attraction of Georgia is the Association Agreement Georgia has with the European Union (EU). Chinese joint ventures in Georgia would thus be eligible for preferential treatment of its products within the EU markets. In my view, the OBOR program will likely benefit many Chinese companies, but has widespread implications for other countries in the region and beyond. While some countries in Asia are likely to see the biggest initial impact, eventually I also see Africa as a key beneficiary. Even though African countries are not in the direct path of the “One Road” they will be included in the sea “One Belt” projects with various infrastructure improvements already underway. Countries in Europe could also benefit once the program is completed and new trade and investment linkages expand. While China has established this program to bolster its economic position and power, I think the Chinese are going to be careful to not unduly favor Chinese companies involved in various OBOR projects. The bottom line is that clearly, China wants more global trade and many countries and companies involved in these efforts will benefit. Of course, others may not benefit at all, which emphasizes the importance of being highly selective as an investor in these markets. A Note on China and Finance While some observers see the OBOR program as likely to benefit China and many other countries in a number of ways, there are also some risks. China has put a consortium of banks and funds together to help finance OBOR-related projects but many investors remain concerned about the state of China’s financial system. China does face domestic challenges as it continues to transition its economy away from an export-focused model. China’s pace of growth has been slowing a bit in recent years and concerns about overcapacity in certain sectors has sprung up. In particular there has been considerable concern about so-called “shadow banking” in China, which refers to financial transactions outside the formal system that lack a strong safety net. This may be one of the reasons why a major ratings agency recently downgraded China, even though the country still maintains an investment-grade rating. There are signs the Chinese government is moving to clean up some of the excesses in the financial sector, particularly in regard to sales of wealth-management products—a key component of shadow banking. In June, Chinese authorities ordered banks to suspend business dealings with a Chinese holding company that had a variety of financial services subsidiaries. It was announced that the company’s head was “temporarily unable to fulfill his role for... 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."

12 июня, 21:03

Readers’ Questions Answered

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While I can’t always respond to each of your questions directly, I do enjoy hearing from my readers and followers and value your feedback. I am quite delighted to see people from all over the world reaching out via my blog, Twitter and LinkedIn. Keep them coming! Here are a few—hopefully one of my responses will answer a question of yours. Q: I read your recent frontier markets blog and you didn’t mention Bangladesh. Can you share your thoughts on opportunities therein? Nazib in Bangladesh (via Twitter) A: We view Bangladesh as one of the more exciting frontier markets and now that Pakistan has been upgraded and moved out of the MSCI Frontier Markets Index to the MSCI Emerging Markets Index, we think Bangladesh will become more important. We have been active there and continue to look for potential investment opportunities. I really love Bangladesh and its people. During my most recent visit I had an opportunity to travel to the countryside and visit various factories and farms, and found the people so friendly and hospitable. On the farms and in the factories I could see how skillful and hardworking the people are and how gradually they are improving their standard of living. Q: I don’t want to sound naïve, but is populism like a cycle or phase society goes through? For example, capitalism works well in providing jobs and efficient allocation of resources. But over time, many workers get fed up seeing their labors amounting to very little in way of achievement and certain candidates appeal to them, sprouting populism, until the policies fail and reforms are needed. Your thoughts? – Walter in the United Kingdom (via LinkedIn) A: That’s certainly not naïve sounding because it is an issue which is challenging all of us. The multilateral agencies such as the World Bank, International Finance Corporation and others realized in the 1970s that a market-oriented system was the best approach to achieve economic growth and lift people out of poverty. As you pointed out, a market-based system is great for efficiently allocating resources. However, the drawback is the rapid growth in wealth is usually not distributed equally, so we end up with great gaps in income, not only within one country but all over the planet. The socialist/communist answer to the issue is for the state to take from the rich and give to the poor. However, this has led many of the resourceful capitalists—the allocators of capital—to abandon their efforts and sometimes even leave the country in question. The result is that less wealth is generated. Clever politicians feed off the anger of the “have-nots” and appeal to them with promises of higher wages, free housing, free food, etc. etc.  That is called populism. Unfortunately, once populist-oriented politicians have grasped power, they often tend to enrich themselves and squander their country’s wealth. There is no easy answer and I think a combination of philosophies is probably what we need. China is attempting this combination of capitalism (where market forces determine the allocation of capital) and socialism. The goal is for the state to ensure a better distribution of benefits to all the population. Of course, no system is perfect, and it’s no secret that the challenges are great there. China’s recent aggressive anti-corruption program is an indication of the problem. Nevertheless, we remain optimistic about China’s prospects. Q: What are your thoughts on Pakistan? Any plans to visit? – Imran in Pakistan (via LinkedIn) A: From an investor standpoint, we think Pakistan is really doing great. Its graduation from the MSCI Frontier Markets Index to the MSCI Emerging Markets Index has energized the market, so shares of many Pakistani companies have appreciated nicely so far this year. We are happy about that because we had been investing in Pakistan for many years before this change. I have not visited Pakistan recently but would like to do so. One of our analysts was recently there and came back with favorable reports and recommendations for us to consider. I think Pakistan is on its way to higher growth, not only because of the reforms taking place there but also because of its link with China. China is helping to improve Pakistan’s infrastructure in connection with China’s “One-Belt-One Road” program which would link Asia by road and rail to the Middle East through Pakistan. We see this as a great idea and one that could benefit Pakistan. Q: It would be great if you could elaborate on the aspect of mobile finance. While companies are working hard on it, the technological and legal infrastructure to speed up mobile finance and other kinds of cashless payment still need a lot of development in emerging (and of course frontier) markets.- Hanh in Singapore (via LinkedIn) A:  Mobile finance is growing quickly all over the world. In some countries where laws were not in place to limit or restrict money transfers and other such financial activities (such as in Kenya), mobile finance has exploded. Generally in countries where there are no complex banking and finance laws (as we generally find in developed countries) the potential for rapid introduction of mobile finance is excellent. So, we have seen many emerging-market countries surpassing the developed markets in this regard. Nevertheless, cashless payment is developing at high speed. I experience electronic payment systems nearly everywhere in the world I visit, particularly in Asia. It’s a wave of the future that can’t be stopped, not only because it is so convenient and efficient, but because the rise of Internet shopping and banking makes such technology essential. The identify-card program the Indian government has instituted is enabling mobile banking for tens of millions of people who previously never had a bank account. Q: How do you see Turkey today?  (Christine in Singapore, via Twitter) A:  Turkey is facing many challenges not only because of a recent constitutional change, but because of the ongoing Kurdish conflict and the ongoing war in Syria. Nevertheless, the country is still a very important economy with a vibrant capital market that I think international investors... 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."

01 июня, 17:04

Busting the Frontier-Market Myths

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Although frontier markets are a small subset of the emerging market universe, we think they represent an important constituency that offer some compelling potential opportunities. Here, I’ve invited my colleague Carlos Hardenberg, senior vice president and director of frontier markets strategies at Templeton Emerging Markets Group, to outline some of the opportunities he sees in these dynamic markets and debunk some of the urban myths. Carlos Hardenberg Senior Vice President and Managing Director Templeton Emerging Markets Group There are a number of urban myths about frontier markets (the less-developed subset of the emerging-market universe). We think these myths may have caused investors to overlook them in favour of developed or traditional emerging-market alternatives. We believe conditions are now ripe for a re-evaluation of this important niche. There are some very compelling reasons why many investors might want to take another look at frontier markets today. These can be summed up as the following, which I will delve into further. Expectations for robust economic growth Continued macro development Deep discounts in valuations Low correlations Busting the Urban Myths But first, let’s address those urban myths about frontier markets. The most persistent are perceived illiquidity, small market capitalisation and poorer corporate governance standards. Each of those accusations might be true if one looks just at a narrow selection of markets, but looking at the global opportunity of the frontier space, as we do, provides a better context in our view. While index providers differ in what each regards as a frontier market, we don’t adhere to those definitions or constraints. This gives us more flexibility to explore opportunities beyond a particular benchmark, and avoid some of those limitations. We view frontier markets more broadly as young or new markets in an earlier stage of economic development than larger emerging markets, generally with higher growth rates, less research coverage and a lesser degree of foreign investment. According to our analysis, the daily turnover traded on stock exchanges in frontier markets is US$2.1 billion every day. So it’s more liquid than many people think. Equally, we estimate the total market cap of frontier companies is $1.7 trillion. Because new companies are constantly coming to market, we’d expect that figure to continue to increase. Active Management as a Force for Good Governance When it comes to concerns about corporate governance in frontier markets, we’d champion what we consider the positive influence of active management. Looking back at the development of emerging markets in general over recent decades, the relationship between ownership and management has been an important one. We believe most of the positive change came because of the close collaboration between shareholders and the businesses, and the constant feedback both ways. This is not something that can typically be achieved through a passive investing approach. If you have a computer program directing investment decisions or an algorithm determining the weighting of shares, it raises the question of who is going to interact with management and who is going to vote at shareholder meetings on matters of corporate governance. We think that is particularly important when one is considering frontier markets. Let’s turn now to the reasons that we think frontier markets pose an interesting potential opportunity for investors today. Economic Growth It shouldn’t come as a surprise to many investors that the 10 fastest-growing economies in the world today fall under the emerging markets banner. But what they might not have expected is that once one strips out China and India, the remaining eight fastest-growers are actually frontier markets. There are economic and demographic reasons why we see that trend of fast growth likely to continue. These include a low median population age, increasing urbanisation in frontier markets compared with emerging and developed counterparts, and low but growing per-capita income. Continued Macro Development Our optimism about the opportunities frontier markets present is underpinned by the evidence we have seen of a real reform agenda across many of them—in marked contrast to the developed world. In the developed world, notably in the United States and Europe, we are seeing signs of a move towards trade restrictions and isolationism that we consider backward economic developments. Meanwhile generally in frontier markets and some emerging markets, we have seen evidence of a quiet but pronounced reform effort taking place. The trajectory of commodity prices has played a part. In the so-called boom years of 2000–2008, when commodity prices were doing well, there was little impetus for reform, especially in those countries that relied on commodity exports. But when the big shock came and commodity prices corrected dramatically, a lot of these countries needed to go back to the drawing board and back to reforms to attract capital to finance development. At the end of the day, in order to attract capital, countries—especially frontier markets—need to show the world they can enact reforms. Argentina is a great example of that. After Mauricio Macri was elected president in December 2015 under the banner of a “Let’s Change” slogan, he implemented a number of reforms including lifting currency controls and settling a decade-long lawsuit that had blocked Argentina from international capital markets. As a result of those reforms, Argentina was again able to access the international capital markets. In April 2016, it launched a US$16.5 billion government bond. Egypt is now going through a similar experience. It floated its currency and subsequently secured a US$12 billion loan from the International Monetary Fund. These examples show us that reform efforts can translate into economic activity. Attractive Valuations with Limited Correlation When we talk about the attractiveness of frontier-market investing, the single most important factor for many investors tends to be valuations. Currently, frontier market equities are trading at what we consider very cheap valuations compared with both developed and emerging market peers, as the first chart below shows. At the same time, as an asset class frontier markets have traditionally had very little correlation1 with emerging markets such as China, Brazil or Indonesia, or with developed markets including the United States,... 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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25 мая, 22:18

Brazil’s Political Bumps

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Just when Brazil’s economy seemed to be turning a corner, a new political scandal has caused a strong market reaction, sending Brazil’s stock market into a tailspin. President Michel Temer, who came into office following the impeachment of former President Dilma Rouseff due to a corruption scandal, is now caught up in a corruption scandal of his own. If Temer is found not guilty, Brazil’s next general election takes place in 2018, so he would remain in office two more years and presumably continue to pursue his agenda. If he is found guilty, he would likely be impeached and removed from office, like Rouseff was. While we have been encouraged by Temer’s more reform-minded government, in our view this latest scandal doesn’t mean that momentum will necessarily end—even if he’s removed from office. If Temer were to be removed from office, we believe there will still be reforms, although they will likely take longer to implement. The bottom line is that the reform movement against corruption is ongoing, and that is overall positive for Brazil. Even if Temer himself may not be able to carry out the reforms he is now supervising, we think the reformists can move forward since they already have a momentum of their own. There is a realization that reform is needed in many areas, but it often takes time. These developments emphasize the importance of taking a long-term view when investing in emerging markets. Change doesn’t happen overnight. We think there are still plenty of opportunities on an individual-stock level in Brazil, and these types of market shocks can unlock values. We are currently seeing value in almost every sector in Brazil, simply because the market is depressed in all directions. Most interesting to us are the banking and retail sectors. In terms of monetary policy in Brazil, in my view, there is still room for Brazil’s central bank to cut interest rates further. Its currency has seen a recovery from its lows hit on May 18 when the Temer scandal broke. More importantly, there has been a steady downturn in inflation. Brazil’s annual inflation rate stood at 3.77% in mid-May, its lowest level in 10 years.1  In my view, an aggressive cut in interest rates would be very good for the economy. I think it’s about time that Brazil had a reasonable interest-rate environment, particularly for small- and medium-sized businesses which could then get financing at lower rates. This could give an overall boost to the economy. We will of course be monitoring the situation in Brazil to determine what type of impact this latest setback has on Brazil’s economy and the businesses operating there. In my view, the setback is temporary; we have seen other markets bounce back from political scandals in the past. The ongoing, longer-term recovery of Brazil’s stock market and economy still looks to us to be intact.   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. _____________________________________ 1. Sources: Reuters, IBGE. 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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18 мая, 18:56

Reform and Reflation in China

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China’s National People’s Congress met in March, which seemed like a good backdrop for our annual Templeton Emerging Markets research meeting, which took place the same month in Shanghai, China. Recently, a government crackdown on so- called “entrusted investments,” which are within the realm of “shadow banking,” caused some market turbulence. However, we think these efforts to effectively force some financial entities to deleverage are overdue. Nonetheless, China remains one of the fastest-growing economies in the world, and we think rising incomes and the maturation of a young working population is likely to continue driving domestic demand. Moreover, China is gradually becoming less dependent on exports as the government implements structural, economic and financial reforms. China holds the largest foreign reserves in the world, making it less vulnerable to external financial shocks. There are certainly concerns about the health of China’s economy—including rising debt—so we are mindful of potential volatility and remain watchful for risks. Some of these include changes in Chinese policies, the impact of US President Trump’s trade policy and other economic measures, changes in interest rates and exchange rate transformations. China’s relationship with the United States has been thrust into an even brighter spotlight in recent days given the new US administration’s focus on trade relations—and in light of increased tensions with China’s neighbor, North Korea. I’ve invited my colleague Eddie Chow, who is based in Hong Kong, to share some of the key themes we discussed at our research meeting. He provides an overview of China’s economy as well as potential areas of opportunity we see as investors. Eddie Chow Senior Executive Vice President Managing Director Templeton Emerging Markets Group   China’s economy is in reflationary mode today, which makes us optimistic about the equity market’s prospects. The industrial sector has ended a five-year long period of deflation and we expect to see pick up in restocking and capital expenditures going forward. Stabilization of external demand (better export performance) also would support near-term growth momentum. China’s economy is experiencing a cyclical upturn with private investments and industrial activities on the rise, and external demand stabilizing. On the structural side, state-owned enterprise (SOE) reform has yielded positive results, with many companies now seeing stronger cash flows and balance sheet improvement. Supply-side reform is being well implemented, without much drag on the economy. Further implementation of reforms should prove market drivers, in our view. The government has also been working on various efforts to contain financial systemic risk, including the tightening of regulations on shadow banking activities and closing of “zombie” SOEs. We think government reforms have been prudent, first taking policy actions to curb property inventories in the lower-tier cities and limiting productions in the coal and steel sectors. SOEs dominate both coal and steel, so execution was relatively easy in those areas. We expect execution could be more challenging in other industries, including cement, ship-building and flat glass, which have a higher degree of private sector participation. In our view, SOE reform should continue with the objective of introducing more professional management and the removal of all unfair competitive advantages which SOEs currently enjoy. We also think the government should continue to expand fiscal support through tax cuts and higher spending to alleviate negative impacts of supply-side reform on employment and economic growth. Reform is not only about cutting overcapacity, however. It also needs to increase efficient supply. The government has urged the development of new industries and has promoted innovation. China also faces supply shortages in several areas such as health care services and high-end manufacturing. Infrastructure is also lacking in some areas of the country, especially in the western and rural parts of China. We think such supply expansion will need to be done carefully to avoid new overcapacity issues. Overview – China’s Domestic (A-share) Market In April, Chinese equities tumbled after Chinese regulators shined a spotlight on “entrusted investments,” which underpin wealth-management products. These products have been an important part of China’s shadow banking system, wherein Chinese banks essentially entrusted outside money managers to invest their assets in sometimes risky investments, in an effort to boost returns. Tightening of liquidity and further tightening of regulations on shadow banking activities could continue to restrain or cap China’s domestic market. While these sorts of efforts can cause strong market reactions in the short-term, ultimately, efforts to reduce risk should help prevent even bigger shocks down the road. We remain positive over the long term and believe China still has tremendous growth potential. In addition to SOE and capital-market reforms, the government is addressing many key structural issues, including rebalancing from an export- to service-driven economy, moving toward more value-added manufacturing and ending the one-child policy. With tightening of regulations, market-wide share suspension is now less a risk. Structurally, China’s A-share market has also become more attractive to foreign investors. The Shenzhen-Hong Kong Stock Connect and Shanghai-Hong Kong Stock Connect programs have made it easier to access the market. We could see even broader access, should index provider MSCI decide to include Chinese A-shares into its Emerging Markets Index. While MSCI had rejected the inclusion for several years, a decision is expected in June. If approved, this development should bring more participants, along with greater investor flows. Of course, there are risks. These include an overly tightened liquidity environment as a result of capital outflow and the unwinding of wealth-management products amid the aforementioned regulatory efforts. A rise in global protectionism could also impact trade growth. Changes to US trade policies, faster-than-expected US interest-rate hikes and thus a very strong US dollar also bear watching. Rising political tensions could also cause many investors to avoid risk-assets, including Chinese equities. Targeting China Trade US President Donald Trump has been in office for only a short time, and his policy toward China is still relatively unknown and seems to be evolving. Trump was initially shadowing particularly strong trade grievances against Mexico and China during his campaign, with a punitive proposal that would slap a 45% tariff on Chinese imports. However, since sworn in, his protectionist policy... 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 мая, 04:56

South Korea Votes for Change

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Voters across the globe seem to be clamoring for change, and South Korea’s presidential election may be viewed as another example. Moon Jae-in, considered a left-leaning liberal, won the presidential election in South Korea. The victory is significant because of his political stance on a number of issues as well as his background. As a former human rights lawyer and the son of North Korean refugees, he has talked about being more assertive with the United States as well as engaging in a more diplomatic or conciliatory fashion with North Korea. Moon is inheriting a difficult situation in light of the tense relationship between the United States and North Korea. The US deployment of its antimissile system known as THAAD (Terminal High Altitude Area Defense) has sparked protests from China and has stimulated opposition in South Korea. China has seen THAAD as a threat to its interests in the region, and Moon was also against the THAAD installation; he was once quoted as saying that South Koreans have to learn how to say “no” to Americans. Once he becomes president, Moon will have to deal with a number of other vexing problems and relationships. In my view, most important is South Korea’s economic relationship with China. It’s interesting to note that North Korean propaganda opposed Moon’s conservative opposition, stating that liberals would be more capable of promoting unification. With the election of Moon, South Korea will have a more left-leaning administration, which will be quite different from former President Park Geun-hye, who was ousted amid a corruption scandal. Park is the daughter of a South Korean leader who imposed a dictatorship on the country and was responsible for encouraging the growth of the chaebols—South Korea’s powerful family-run conglomerates. On a practical level, Moon has said he would want to start negotiations with North Korean leader Kim Jong-un and would want to reopen the Kaesong Industrial Zone, the joint manufacturing project with North Korea which former President Park had closed. Another policy reversal is expected to be in the realm of the chaebols, which have been a source of public anger in regard to their political influence. It was alleged chaebols were bribing Park’s associates, so it seems many South Koreans are hoping Moon can restore trust with what is expected to be a tough stance on the chaebols. I think chaebol reform should result in better corporate governance and could lift the prices of many South Korean companies as the so-called “Korean discount” narrows—a reference to the South Korean market’s generally lower valuations compared with other comparable global markets. Moon has also pledged to focus on wealth redistribution—which would result in a higher welfare budget—and higher taxes for corporations that could stunt Korea’s economic growth. His plan is to increase the corporate tax rate from 22% to perhaps 25%. It seems less likely he’d raise the individual income tax rate for most of the population—perhaps targeting mainly the most-wealthy individuals. South Koreans have been particularly harsh when it comes to presidential corruption and abuses of power in the past. With Moon’s victory, we are hopeful for reform within the chaebol system, as the major chaebols dominate the South Korean stock market. A weakening of the chaebol system could give an opportunity for smaller companies to grow and prosper without being dependent on the chaebols. We look forward to exploring potential opportunities in South Korea.   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."

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01 мая, 17:50

An Ocean Voyage in Southeast Asia

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Air travel is a quick and convenient way to get from one place to the next, but sometimes it’s nice to slow down and enjoy the journey. Traveling by sea gives you time to contemplate what you’ve seen at different ports of call, from sleepy seaports to bustling shipping and shopping centers. I recently embarked on an ocean voyage to the countries of Thailand, Cambodia and Vietnam in Southeast Asia, a region we’ve been quite interested in since we first started investing in emerging markets in 1987. My colleagues and I departed from Singapore and our first stop was Koh Samui, Thailand’s second-largest island after Phuket. It took about 14 hours to reach Koh Samui, where I hoped to gain insight into Thailand’s thriving tourist industry. The island is almost exclusively dependent upon tourists, although it also has a fishing industry as well as coconut and rubber plantations. While small in size and population, Koh Samui offers magnificent scenery. Tourists from mainland Thailand and other parts of the world are attracted to its beautiful sandy beaches, coconut trees, balmy tropical weather and clear blue waters. While more than a million people arrive at the island’s airport each year, my colleagues and I docked at the main port of Nathon, which is also the center of the island’s fishing industry. I also noticed car/passenger ferries connecting the island to the Thai mainland there. A stream of small-boat traffic in addition to huge luxury liners and high-speed catamarans jetting passengers to Bangkok and other Thai ports provided an indication of the state of the island’s economy. Thailand’s rate of economic growth has been lagging that of some of its neighbors in the region over the past few years, so I was keen to see if things seemed to be picking up and where there may be potential investment opportunities. In Nathon town, I explored the many small shops selling souvenirs as well as open-market stalls selling a variety of tropical fruits for which Thailand is famous. There was even a very well-equipped gym catering to locals and tourists. There were a few small hotels in town, with larger hotels scattered along the coast on other parts of the island, including a luxury resort catering to affluent foreigners. Tourist sites included beautiful waterfalls and an enormous Buddha statue where people were paying homage not only to Buddha but also to Guanyin, the Goddess of mercy and compassion. I’m a history buff, so I was interested to learn the very first settlers to the island were fishermen from the Malay Peninsula and southern China. Until the late 20th Century, the island was largely a self-sufficient community with little connection to the Thailand mainland. After leaving Koh Samui, we headed to Bangkok’s main port, Laem Chabang, where a major infrastructure expansion has been underway. The busy port, seen as a gateway to Southeast Asia, is able handle the largest vessels. It has container facilities capable of handling over six million twenty-foot equivalent units (TEUs), a unit of cargo capacity. Let’s just say it’s very large! The port is even capable of hosting aircraft carriers. Although it’s a port town with most of the businesses revolving about shipping in addition to an oil refinery, efforts have been made to promote Laem Chabang as a tourist center and alternative to the famous beach resort of Pattaya. New Frontiers in Cambodia Next, we cruised on to Cambodia, considered a frontier market. As a side note, frontier markets have generally been off to a strong start this year as many investors have recognized the fast growth these markets have generally seen, and potential benefits of diversifying into them. In our view, frontier markets could offer exciting long-term investment opportunities, given robust fundamentals, including strong economic growth, access to resources and favorable demographic profiles, with additional possible benefits from improvements in technology, infrastructure and standards of governance. Additionally, market valuations for frontier corporations generally stand below those of their peers in developed markets. Cambodia has been experiencing particularly strong gross domestic product (GDP) growth, up more than 7% in 2015 and 2016 and estimated to rise 6.9% this year.1 Cambodia has been opening up its economy and foreign investment has been on the rise. Many Western apparel and footwear companies in particular have set up shop in Cambodia, where labor costs are low and the population youthful. The garment and footwear industry is a key economic driver for the country and source of employment, along with tourism. I’ve always been particularly fascinated with India’s influence in Cambodia—which goes back to ancient times. The central temple complex in Angkor Wat was originally a Hindu temple dedicated to Vishnu and later converted to a Buddhist temple. Today, Buddhism remains the dominant—and official—religion in Cambodia. In 1863, the Cambodians allowed the country to become a French protectorate and part of the French Indochinese administration which included Vietnam and Laos. Cambodia declared independence in 1953, but it wasn’t all smooth sailing. In 1975, the Khmer Rouge conquered the capital Phnom Penh and installed the brutal Pol Pot regime, which started a massive extermination campaign of people deemed to be a threat, including many intellectuals. There are a number of estimates, but some say as many as three million Cambodians died—nearly half the population—in an attempt to wipe out any vestige of western civilization and return the country to an 11th Century agrarian model. Finally, a treaty signed in 1991 brought peace and opened the door to progress. Since then, the country has undergone a dramatic transformation into the modern era. On to Vietnam Leaving Cambodia, we headed to Ho Chi Minh City, Vietnam, also considered a frontier-market country. We at Templeton Emerging Markets Group have been quite interested in Vietnam as an investment destination for quite some time, and given the tremendous progress the country has made we see more potential opportunities ahead. There have been a wave of privatizations in Vietnam, which has opened up new opportunities for investors and provided a tailwind... 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."

17 апреля, 21:39

Argentina’s Return

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On a recent visit to Argentina, I was interested to see how things have changed under the leadership of a new administration—in many cases, due to constructive policy reforms. Work still remains to be done to address challenges, and the path forward may be a little bumpy at times, but the progress we have seen has been encouraging so far. Here, my Argentina-based colleague Santiago Petri and I weigh in. Mark Mobius Executive Chairman, Templeton Emerging Markets Group President Mauricio Macri has instituted a number of changes, including the removal of currency controls on the Argentinian peso, tax reforms, revisions to how inflation statistics are calculated, new central bank appointments—and perhaps most importantly, settling with foreign creditors on long-ago defaulted debt. In my view, decisive and intelligent decisions have generally marked President Macri’s first year. A particularly positive development has been the tax amnesty law. And recently, ratings agency Standard & Poor’s upgraded the country’s long-term credit rating, citing progress in rectifying several macroeconomic imbalances, which is encouraging. Running the Numbers Argentina’s economic growth has been very spotty and volatile over the years. In the past 10 years, Argentina’s economy has experienced four years of shrinkage: 2009, 2012, 2014 and 2016. But, there have also been some nice rebounds, with gross-domestic-product growth (GDP) surging 10% in 2010 and 2.5% in 2015. After 2016’s contraction, this year GDP growth is expected to recover to 2.7% amid President Macri’s new growth-oriented policies.1 Meanwhile, inflation has been trending higher over the past decade, running below 10% in 2007–2009 but then spiking to around 40% in 2016. Former President Cristina Fernández de Kirchner and her administration were accused of tampering with inflation statistics to hide the detrimental impact of big spending programs and an ever-increasing fiscal deficit the central bank had financed through currency printing. The administration attacked the National Statistics Institute, which reports consumer price index (CPI) data, and fired statisticians presenting data viewed as negative or unsupportive. Upon taking office, the new Macri administration immediately normalized the Statistics Institute so that Argentina now has a more reliable instrument to track inflation performance. Macri gave the central bank total autonomy, and the monetary authority seems to be making progress in taming inflation. Reducing inflation temporarily from dramatically high levels is a relatively easier task than bringing inflation down to a more sustainable, long-term, single-digit range. This is currently the central bank’s main challenge. Inflation is expected to decelerate this year to about 22%, but the government still views that as too high. In 2016, poor economic conditions caused Argentina’s unemployment rate to shoot up to slightly above 9%, but it is expected to fall to about 8.5% this year.2 Argentina’s stock market has generally underperformed the MSCI Emerging Markets Index over the past 10 years, but with the new government, there has been improvement. In 2016, Argentina’s Merval Index surged more than 40% and is up nearly 30% year-to-date.3 Valuations of Argentine stocks have begun to come up from a price-earnings (P/E) ratio of about three times earnings in 2012 to about 12 times earnings in 2016.4 This is still lower than the peak achieved in 2007, when the Argentine market was selling at an average P/E ratio of 24. Like many other emerging-market currencies, the value of the Argentine peso per US dollar has declined. In 2012, one US dollar could purchase about 4.3 Argentine pesos; today, one US dollar can purchase 15.4 pesos.5 Down to Business During our visit to Buenos Aires, my colleagues and I had a meeting with a leading Latin American e-commerce company. They said the potential in countries including Mexico and others in Latin America looks great because of the increasing penetration of the Internet. In particular, smart phones are gradually becoming ubiquitous around the world and allow retailing companies to reach more customers. At one of the Argentine banks, we discussed the impact of Argentina’s high inflation rate. The bank’s loan growth had been running at about 35%, but when the inflation rate is subtracted from that, real growth is only about 15%. Currently the spread between their cost of funds and their lending is wide, aiding the bank’s profitability. Like other major banks in Argentina, profitability has been good. They said they are moving ahead aggressively on digital banking and paying particular attention to the younger generations (below the age of 27) in order to build a clientele for the future. At an Argentine oilfield pipe manufacturer, we learned that after a disastrous few years when oil prices crashed and the demand for pipes used in the oil and gas drilling plummeted, things were beginning to look up and demand for pipe was recovering. The company has global operations and is a testament to the technical, managerial and entrepreneurial abilities of the Argentinians. A leader in high-quality oilfield pipe, the company also has factories in other parts of the world where their oil-drilling clients operate. We marveled at the fortunate timing of a new plant the company built when oil prices were low and going lower; now that oil prices have recovered, the outlook has improved. At a large steel company, our discussion focused on tremendous excess capacity in China, and the closure of a number of steel mills there. In addition to operations in Argentina, the firm also has facilities in other Latin American countries. The company officials mentioned that labor costs in Mexico were much lower than in Brazil and Argentina. We discussed the new US administration and potential policies that would restrict imports and what impact this would have on their business—which could actually be positive in some scenarios. Constructive Reforms In 2001, Argentina defaulted on more than US $90 billion of its external debt and, refusing to negotiate with creditors, the prior Argentine president left the country’s ability to access bond markets in a holding pattern. In 2016, following the Macri Administration’s renewed efforts to pursue an agreement, Argentina was able to return to the capital markets with a bond sale... 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."

13 апреля, 23:46

Emerging Markets Q1 2017 Recap: A Strong Start

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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 first quarter of 2017, including some key events, milestones and data points going back a bit further to offer some perspective. Overview Emerging-market stocks advanced in the first three months of 2017, with the MSCI Emerging Markets Index up 11.4%, recording the strongest first-quarter performance since 2012.1 Firming economic data in Asia and diminished concerns over potential US trade policy helped lift emerging-market equities. Frontier markets lagged emerging markets but outperformed developed markets, with the MSCI Frontier Markets Index up 9.1% in US-dollar terms.2 Among commodities, precious and industrial metals advanced the most, while oil and natural gas prices declined during the quarter. High oil inventory levels and US rig counts have led to increased concerns about oversupply. Emerging-market currencies generally gained against the US dollar over the quarter, as waning confidence in the ability of the US government to stimulate growth or impose trade sanctions led investors to adopt a weaker view on the US dollar. The Mexican peso, Russian ruble and South Korean won were among the top-performing currencies. The Turkish lira and Philippine peso, however, depreciated. 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. In Asia, Indian and South Korean equity markets made strong advances in the first quarter, as both markets benefited from local currency strength. Several economists trimmed their 2017 gross domestic product (GDP) growth forecasts for India, expecting a temporary negative impact on consumption from cash shortages resulting from last-year’s surprise move to withdraw large-denominated currency notes from circulation. However, growth is still expected to be strong, forecast at 7.2% in 2017 and 7.7% in 2018, making India one of the fasting-growing major economies in the world.3 We continue to favor companies in the consumer sector in India that we feel are well placed to benefit from higher per-capita income and growing demand for goods and services, which, in turn, should support the earnings-growth outlook for consumer-oriented stocks. In addition, India’s ruling party scored gains in state elections, and legislation related to the incoming Goods-and-Services Tax continued to progress. Meanwhile, South Korea saw court approval of the impeachment of Park Geun-hye, who, later in March, was arrested over an ongoing corruption probe. Chinese equities benefited from solid economic data, a stable renminbi and easing capital-outflow concerns. Real estate, consumer discretionary and information-technology (IT) companies outperformed over the quarter. The MSCI Taiwan Index reached a five-year high in March, supported by appreciation in the Taiwanese dollar.4 Industrials, IT and consumer staples were among the top-performing sectors. Thai shares rose on optimism from local institutional buyers, supported by upward revisions to Thailand’s GDP growth forecasts and a neutral monetary policy amid an improved growth outlook. In Indonesia, the central bank kept rates on hold, expecting growth to continue to progress. Foreign investors in particular turned positive on Indonesian equities. In Latin America, a strong appreciation in the Mexican peso (which had reached an all-time low in January), fading concerns about a deterioration in Mexico’s bilateral relationship with the United States, as well as a generally improved outlook in recent months drove the Mexican equity market’s solid performance in the first quarter. We believe the uncertainties of the new US administration have led to lower valuations in Mexico, providing long-term investors an attractive entry point. In our view, the valuations of both Mexico’s currency and stocks are compelling as country risk is falling and unemployment remains at decade lows. Inflation expectations, however, continue to be revised upwards and consumer confidence remains depressed. We believe the financials sector in Mexico looks attractive, with sound asset quality and structural growth opportunities. The Mexican industrial sector is also globally competitive and trading at low valuations. We are also monitoring other sectors, including the consumer sector. In Chile, a positive trend in copper prices and improved sentiment regarding the outcome of the 2017 presidential elections supported equity prices. Expansionary monetary policy and a positive reform outlook supported investor sentiment in the Brazilian market, while Argentina’s equity market responded positively to the Argentine economy’s return to growth in the second half of 2016 following a recession in the first half. A possible upgrade to the MSCI Emerging Markets Index further drove investor sentiment. Emerging markets in Europe saw diverse performances in the first quarter. Major stock indexes in Poland and Turkey ended the quarter with double-digit gains in US-dollar terms, while equities in Russia and Greece generally saw declines. The Polish economy grew at its fastest pace in nine years in the final quarter of 2016, while a decline in natural gas prices pressured investor sentiment in Russia. Turkey’s equity market rose on higher-than-expected fourth-quarter GDP growth data, despite a weaker lira. In Africa, South African shares underperformed their emerging-market peers largely based on a 9% decline (in US-dollar terms) in the final week of March,5 most of which was driven by depreciation of the rand due to a cabinet reshuffle resulting in the removal of the finance minister. Our Outlook After a return to form in 2016 and following an encouraging start to 2017, many of the factors that originally attracted investors to emerging markets may be coming back into play, including generally stronger earnings growth, higher economic growth and robust consumer trends. Even in regions that are still going through adjustment and rebalancing, we are seeing improved visibility and increasing signs of robust underlying economic conditions such as low debt, stabilizing commodity markets, reduced currency volatility and improving consumer confidence. The general landscape of emerging-market corporations has undergone a significant transformation from the often plain-vanilla business models 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."

05 апреля, 00:33

Brazil and Other Bright Spots in Latin America

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I’ve just been on an extensive trip through Latin America, starting in Mexico and proceeding to Peru, Chile, Argentina and Brazil. Here, I offer a few highlights—including reasons for optimism. Trade Relations Top of Mind in Mexico The election of Donald Trump as president of the United States has caused Mexico some concern about its relationship with its neighbor to the north, particularly in the area of trade. President Trump’s stated objective to keep the US dollar’s value weak, in order to aid American companies reliant on exports, is of importance to countries heavily exporting to the United States. It will be interesting to see if he can accomplish this in light of further potential increases in US interest rates, which tend to boost the dollar. The Trump administration’s policy actions will likely be of critical importance to Mexico, but we must not lose sight of the fact that US-Mexico trade is enormous and is important to both countries. The United States and Mexico are key trading partners, with two-way trade estimated at a total of more than US$580 billion in 2015.1 Trade in both directions is heavily geared toward machinery and manufactured goods. The automobile sector, including vehicles and parts, is Mexico’s top source of exports to the United States. The US auto industry is highly dependent on parts from Mexico, so trade can’t simply be shut down completely. Mexico is Latin America’s top producer of vehicles, the seventh-largest vehicle producer worldwide, and has a number of free trade agreements with many other countries.2 So, in fact, the United States certainly isn’t Mexico’s only market. Meanwhile, the United States’ largest export markets are Canada and Mexico, and agricultural products represent some US$18 billion exported to Mexico in 2015.3 In the context of total exports, that number is relatively small, but it’s also politically important. In general, we think fears about economic relations between the United States and Mexico completely breaking down are probably overblown. That said, there is no question to us most emerging-market countries will need to evaluate their trade strategies in regard to the United States, but also in regard to trade relations broadly. Brighter Spirits in Brazil Another important development within many countries in Latin America is the demise of populism. This is actually part of a broader trend we are seeing, where some emerging markets are pulling away from populism at the same time some developed markets—including the United States and parts of Europe—appear to be gravitating toward it. In the case of emerging markets, we view the rise of the Internet and smart phones as having aided populism’s demise. Greater numbers of people now have knowledge of what is happening at the highest levels of their governments, and have been able to respond and let the world know. Brazil’s so-called “lavo jato” or “car wash” investigations provide a good example. We recently visited the Brazilian president’s office in Brasília, the capital city, and it was clear government officials were working to institute reforms as quickly as possible, in order to improve the economy and save their political careers. Most important of these reforms, in our view, is the privatization of a number of government organizations and the general selling of assets in a transparent and systematic manner, including some oil and infrastructure projects including airports. Brazil has endured an unfortunate economic and political crisis, and that has brought forth a more reform-minded government. We are optimistic that these reforms can continue. While the equity markets have been pricing in progress—Brazil’s Bovespa Index was one of the top-performing markets in the world last year—we still see plenty of potential opportunities ahead.4 During my time in Brazil, I also made my annual trek to Rio to meet with companies, and to experience Carnival during my time off. Carnival’s Economic Contribution It is estimated that this year’s Carnival celebrations attracted more than 1 million visitors to the Rio de Janeiro area alone, and contributed R $3 billion (more than US$900 million) to its economy.5 Rio isn’t the only city that has felt a festive mood. Local media in Brazil reported increased numbers of tourists also visiting São Paulo for its celebrations, and 1.5 million people hit the streets in Brasília to view the parades and experience the blocos (street parties).6 And, the revelers spent more money than last year, too, adding a boost to the local economies. We certainly experienced the traffic jams in Rio, but found the events to be well-organized, as usual. According to Rio’s Department of Economic Development, the festival in Rio alone created temporary jobs for 250,000 people including carpenters and seamstresses who work throughout the year to prepare the various floats. In the Sambadrome, about 1,000 fast-food vendors are hired for the festivities and Rio’s samba “schools” spend upwards of  US$1 million each to put together their shows with elaborate floats, costumes and dances. Carnival offers an example of how important it is to remember that an economy may look bad from a macro point of view, but at the micro level, certain segments could be doing very well. During our working time in Rio, my colleagues and I visited two companies in the consumer sector, one involved in retail sales and the other involved in shopping malls. The retailer had been delivering solid but historically weaker performance in a very challenging economic environment. It was working to build up Internet sales operations and, like some other companies dependent on Internet sales, the company had been challenged with delivery and logistics problems, particularly during the holidays, and was now making a big capital injection to improve that aspect of the business. At the same time, the company planned to continue accelerating the pace of physical store openings in the coming years in order to be ready for what it expected to be a growing consumer-market recovery. The shopping mall operator we visited has been able to deliver good sales, but also noted a challenging environment and emphasized cost-controls to drive profit margins. The company... 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."

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."