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Notes from Mark Mobius
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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."

Выбор редакции
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."

Выбор редакции
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."

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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."