Business Brains

Why does this investment guru say emerging markets are worth the risk?

Why does this investment guru say emerging markets are worth the risk?

Posting in Finance | From Issue 12 March 3, 2014

As executive chairman of Templeton Emerging Markets Group, Mark Mobius has connected the dots allowing international investment in foreign markets.

The narrow highway was barely wide enough for two cars. "It was pretty frightening. You never knew if these trucks would be able to make it or turn over," Mark Mobius said, describing a harrowing trip to scout investment opportunities in Southern Russia. With heavy trucks barreling in his direction, often the only remedy available was – like a game of chicken – the swerve.

To Mobius, executive chairman of Templeton Emerging Markets Group, navigating high-risk situations isn't unusual. For more than two decades, Mobius' name has been synonymous with emerging market investing. His returns, as exemplified by funds like Templeton Developing Markets Trust (TEDMX), frequently outpace the fund's competitors'. Since 1991, for example, TEDMX has grown 366.15 percent.

Today, he oversees more than $50 billion in assets. When people talk about emerging market investing, often they can because Mobius helped connect the dots.

"I think that's something I hope people will remember me for is the fact that we really opened people's eyes to the opportunities in these countries," he said in an interview with SmartPlanet.

Getting Started

With a reputation for a Yul Brynner aesthetic and bespoke suits, Mobius has been scouring the world for more than two decades, amassing a collection of frequent flier miles that could make former Secretary of State Hillary Clinton jealous.   

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To Mobius, international investment was the destination, rather than the beginning of a career marked by wide-ranging curiosity. "I almost became a professional student," Mobius said. Before his 30th birthday, he completed a bachelor of arts degree and a master's degree in communication from Boston College and earned a doctorate in economics from MIT. It was the world of business, Mobius finally discovered, that could accommodate his curiosity.

"I realized at the time that my interests were so wide and varied that I imagine this is the best for me ­because there are so many different kinds of companies, different industries that you get to learn about," Mobius said.

On a scholarship to study in Japan, Mobius became convinced to pursue a career in Asia. "If I am going to do anything in my life," he told himself, "I am going to work abroad, particularly in Asia."

Eastward

In the years that followed, Mobius delivered on that promise, working first as a survey researcher in Japan, Korea and Thailand for International Research Associates; a product researcher for Monsanto in Hong Kong; an independent consultant in Hong Kong; and later a securities analyst at Vickers de Costa in Taiwan. In the midst of this, Mobius co-authored Trading with China with Gerhard F. Simmel.

Published in 1973, the book proved emblematic of both optimism and pessimism. "When I wrote that book I made a projection of what trade with China would be. At the time, most of the people said your projection is way, way too optimistic," he recalled. 

The current emergence of China, however, allows for another reading of Trading with China, Mobius explained.

"Looking back now, that projection was way, way too pessimistic because all the very bright projections that I made – which looked bright and over the top at that time – now look terribly inaccurate and underestimated what really happened," he said.

Templeton Rising

It was in Hong Kong that Mobius met Sir John Templeton, the Tennessee-born pioneer of the Templeton Growth Fund. In 1987, Templeton, described by Money magazine as "arguably the greatest stock picker of the century," asked Mobius to manage Templeton’s new $100 million emerging markets fund. Shortly thereafter, Mobius pitched his secure job for the opportunity.

To Templeton, Mobius brought knowledge of Asia. Templeton, despite his knighthood, impressed Mobius with his humility. "You know," Mobius recalled Templeton telling him once, "anyone who thinks he knows the answers probably doesn’t know the questions."

Comradeship with Templeton left an impression. "I realized that in our business, you’ve got to keep a really open mind," he said. "Things are changing every day."

Have Fund, Will Travel

The world was a lot smaller when Mobius took the helm of Templeton Emerging Markets fund in 1987, at least from an investment point of view.

Alvaro Cuervo-Cazurra, the Robert Morrison Fellow and associate professor of international business and strategy at Northeastern University, said global markets in the late-'80s had limited options. "Most of what we call the emerging markets were run under the communist economic system," he said, "so they were basically not open for any kind of private investment and were not open to private enterprise."

As the Cold War came to a close, protectionist economics gave way to market liberalization in one country after another. By the mid-'90s, major economies like Brazil, India, Korea, Mexico and Taiwan were suddenly open for business. In the pre-Internet world, however, the most efficient way to seize these opportunities was to get on an airplane.

While recent research has taken Mobius to Dubai, he's not averse to traveling to precarious places when researching investments.

"You can have a pretty chaotic situation in a country but the companies can be doing quite well," said Mobius, whose investments as of Aug. 31, 2013, were concentrated in China, Brazil and Thailand, among other countries. 

Thailand, for example, remains an interesting investment opportunity in spite of recent political instability, Mobius writes in a Feb. 21 blog post. "The situation in Thailand certainly is testing the nerves of investors, but we would argue that a number of countervailing factors favor long-term investment prospects there."

More important than a poor macro-economic or macro-political situation, Mobius said, is how a company responds to change. "The degree to which they are able to [negotiate those challenges] is really an indication of their ability to operate profitably and effectively," he said. "A bad macro-economic or macro-political situation can sometimes be good for these companies."

Mobius underscores this point in his 2012 book Passport to Profits. "If you want to find the companies of the future, look for people who can handle the future," he writes.

This open mind, coupled with the Templeton group's famous focus on fundamental analysis, has lead to contrarian investment ideas. In late 2013, for example, Mobius told CNBC he was potentially interested in investing in Greece. Though some news reports argue that the Mediterranean nation has turned a corner, others have recently called it a "failed state."

More recently, as investors move away from emerging markets, Mobius remains confident in the long-term value of emerging market investing. In a Jan. 30 blog post he explained, saying:

"The bottom line for emerging markets, as I see it, is that the long-term investment case hasn't dramatically changed. And I don't see it changing as long as these three themes remain in place: emerging markets' economic growth rates in general continue to be at least three times faster than those of developed markets; emerging markets have much greater foreign reserves than developed markets; and the debt-to-GDP ratios of emerging market countries generally remain much lower than those of developed markets."

Though Mobius' TEDMX was down 1.26 percent in the last year, returns over the last decade were 135.15 percent. An investment of $10,000 in 2004 would be worth $23,515 today, excluding taxes.

On the Move

Ever the student, the 77-year-old Mobius often travels with a non-fiction book nearby, learning lessons of history as he goes. Through this, he maintains a sense of hope about the current moment.

"I'd say I'm more optimistic than I've ever been because we are probably in the most incredible period of mankind’s history," Mobius said. “The gains of technology are accelerating ... The gains in productivity are accelerating. Knowledge, not just in science but in human behavior, is accelerating. This is all going to be very positive for the existence of mankind. I see that as I travel around, particularly in these frontier markets. They’re having the advantage of leapfrogging all of the old technology and going into the latest technology.”

That point might help explain why Mobius maintains a hectic travel schedule.

"It's this fascination for new things," he said, explaining what keeps him in the game. "We're learning every day, without fail. We’re learning something new on a daily basis. It's so exciting."

As it turns out, he may have become a professional student after all.

Photo: Flickr/images_of_money

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Claire Lambrecht

Contributing Writer

Claire Lambrecht has written for the New York Times, Slate, Salon, The Nation, and CBS MoneyWatch. Previously, she taught English as a Teach for America Corps Member and Fulbright English Teaching Assistant. She holds degrees from Cornell University, the University of Hawaii, and the Arthur M. Carter Journalism Institute at New York University. Follow her on Twitter. Disclosure