Mark Mobius, the veteran emerging markets investor, is impressed with a portable modem he travels with and he's impressed, too, with the Chinese company that manufactures it: Huawei Technologies, based in Shenzen.
“Unfortunately, they’re not listed,” says Mobius, lamenting that the range of Franklin Templeton emerging market funds he oversees could not add Huawei to its portfolios.
Huawei is one of those companies that many people have never heard of but which is helping transform the fortunes of other emerging markets that sit within China’s gravitational field.
Mobius, who as executive chairman of Templeton emerging markets group is based in Singapore but was in London yesterday, says Huawei has been able to sell telecommunications equipment to emerging markets cheaper than established Western firms, forcing competitors like Ericsson to cut prices in places like Argentina and allowing the likes of Africa to jump into hi-tech quickly, increasing productivity.
Emerging markets have taken a bump recently, but Mobius says this is a blip that some people have made too much of.
“It’s not a downturn; it’s an underperformance against the US. People have woken up to the fact that the US has had a bull market for past two years. That’s all.”
He denies that there is something fundamentally rotten within the emerging market story, which has China at its heart.
But what about China’s great ghost cities, recently built and containing homes for millions that all stand empty? Doesn’t that worry him?
“I’ve been to some of those cities that are empty and found out that the apartments were all sold for investment.”
For Mobius, this situation is not indicative of a Chinese property bubble, which is feared by many sceptics. “Property developers we saw recently in China said sales were up 15%. So we do not see it as big problem.”
But he acknowledges his concern about China’s trust fund market - which centres on financial products sold to high-net-worth people and could be a huge mis-selling scandal – though points out that these are held off of bank balance sheets.
“This will not be another sub-prime.”
The picture in China is still a solid one for Mobius, who believes China is open enough about its economic state. He’s still positive for other high growth emerging markets, too, and if he’s right, this should mean that those all-important GDP numbers keep moving upwards.
GDP growth is central to the emerging markets equity story. Some fund managers have claimed that GDP and share prices move in the same direction, are correlated.
But various academic papers in recent years – such as Economic growth and equity returns, by Jay R. Ritter – have moved to demolish this notion.
Mobius says: “[The academics] do not make sense.”
Though he admits that he’s not read the papers, Mobius suggests researchers may have missed a “lead-lag” time between business activity – including share prices – and official statistics about economic growth.
“Equity markets lead the economy… if a stock market goes down, the economy goes down afterwards.”
In other words, GDP is factored into prices before the numbers are published.
He says business people have their “ear to the ground” and react quicker to a changing economic situation, which filters through to commercial and investment activity before hitting government statistics.
With his ear to the ground, which emerging markets does Mobius expect to be in focus next year?
“Africa is exciting and I think it will continue to be next year; but also, and this may surprise some people: Russia.
“Russia has the Winter Olympics next year and if the US and Russia can come to an agreement about Syria, that would be good.
“Russia’s image may change in the eyes of many people.”
©2013 funds europe