No Worries Emerging for Mobius

02/07/2011 12:15 pm EST


Andrew McHattie

Editor, Investment Trust Newsletter

Despite a recent rough patch, the famed manager remains bullish on the likes of India, China, and Russia, writes Andrew McHattie in the Investment Trust Newsletter.

In the small global emerging markets sector—and it is perhaps surprising that there are only seven UK-listed trusts in this group—there is not a great deal to choose between most of the trusts in terms of short-term performance. Oddly, a relatively poor end to the year has seen Templeton Emerging Markets (London: TEM) slip to last place over one year, although it is still on top over five years. We don’t think holders need to be concerned.

Dr. Mark Mobius, the manager, believes the outlook remains very positive. “I believe emerging markets are now in a secular bull market, and I expect this trend to continue into 2011,” he says. “Even more money is likely to be directed into these markets as investors around the world realize that emerging economies on average are growing three times faster than developed economies, and generally have more foreign reserves and lower debt-to-GDP ratios than their developed counterparts.

“The International Monetary Fund has estimated that emerging markets will grow an average of 7.1% in 2010 and 6.4% in 2011, well above the 2.7% and 2.2% growth (in 2010 and 2011, respectively) estimated for developed markets. Meanwhile, foreign reserves in China are the largest in the world, totaling more than $2.6 trillion. Similarly, Russia has more than $450 billion, while India and Brazil have more than $250 billion each in reserves.

“Although the slowdown in the global economy had an impact on some emerging markets, we are seeing that these economies are becoming more domestically driven. Private domestic consumption and government expenditure in areas such as infrastructure have at least partially offset the impact of decelerating export growth. The services sector has, in our view, also been gaining in importance, especially in China and India. Generally, I believe that the economic recovery in emerging markets is likely to be sustainable in view of their strong fundamentals. In addition to robust macroeconomic data, financial and fiscal indicators remain positive. Moreover, the search for higher returns in a low interest rate environment coupled with attractive valuations in emerging markets could continue to support equity prices.”

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