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Survival of the fittest.

Summary: Mark Mobius is widely regarded as the 'pioneer of emerging markets'. The investment expert says growth in emerging markets remains strong, despite the obvious challenges

Rising economic demand, high population growth and fiscal discipline are just three of the reasons driving growth in emerging market - particularly BRIC countries (Brazil, Russia, India, China), says Dr Mark Mobius in his key note speech at the Middle East Investment Summit in Dubai.

"BRICS are a very, very important part of the world and of emerging markets. They represent 29 per cent of the world's land area and 42 per cent of the world's population," he says.

BRICs currently represent 18 per cent of total GDP and 14 per cent of the world's market capitalisation. "That is going to be changing pretty rapidly as we go forward," he adds.


Mobius, who oversees about $50 billion as executive chairman of Templeton Asset Management's emerging markets group, says that over the past 10 years BRICs have outperformed emerging markets, "And of course emerging markets have outperformed the world and the US by a wide margin."

Over the past five years, "BRICs have been more or less in line with emerging markets and of course again emerging markets have outperformed the US and the world."

However, last year everything changed. Emerging markets underperformed the world, and BRICs underperformed the emerging markets, "But that's just a one year period, I must underline."


He says a lot of people questioned whether emerging markets were 'finished last year'. He disagrees, "No! Because if you look at the last decade years you'll see that there have been only two years in those 10 years where emerging markets underperformed the world and the US. And those two years were of course 2008, when you had the big subprime crisis. But then in 2009 we had an incredible recovery."

He says the bear markets, which he defines as a 30 per cent correction, were all very short-lived.


The investment expert, who has spent more than 40 years working in emerging markets all over the world, says investors don't have enough faith in emerging market securities, "The market cap on emerging markets has gone from a low in 1998 (less than 10 per cent) to now over 34 per cent and of course BRICS have followed that, "I would say, most people are within the three to eight per cent range in terms of weighting in emerging markets which is much, much too low. They should have at least 30 per cent."


The key to understanding emerging markets, he says, is their 'tremendous' growth story.

Last year growth averaged six per cent in emerging markets, "Don't forget this includes a lot of laggards in Eastern Europe... and compares to only 1.4 per cent growth in the developed countries."

"Even for 2012 we predict developed markets will average less than one per cent GDP growth while the emerging markets will deliver 5.4 per cent.'


There are other factors at play too, Mobius says. BRICs are the most populated countries in the world - with India and China growing at an incredible pace.

Templeton forecasts seven per cent growth for India this year and eight per cent growth for China. That compares to very, very low growth for Germany, US and Japan (The big three economies of the developed markets).

"This fact alone means that earnings per share in emerging market companies are going to do very well, going forward and of course that will be reflected in share prices."


Another factor to remember is that these countries have incredibly high foreign reserves, he says. "Starting in 2005, the emerging markets foreign reserves surpassed that of developed countries and that gap is getting wider and wider". He says this should give investors a lot of confidence.

"China now has $3 trillion in foreign reserves. Japan used to be the biggest, now they have $1 trillion, behind China. South Africa and Russia have over $400 billion each".


Another positive factor in favour of emerging markets is that they tend to have low debt, with an average of 30 per cent to GDP compared to 100 per cent in developed markets.

"They have learnt their lesson in the Asian crisis in 1997-98 and they reduced their debt levels, and by the way, it's both public and private... so the picture is very clear. They are in a much stronger fiscal position going forward."

Mobius adds that inflation has also come down 'dramatically' and recounts a story when he was in Latin America nearly two decades ago, "When I was visiting Brazil and Argentina back in the early 1990s, inflation was running at about 2,000 per cent, and I remember arriving in Rio De Janeiro airport, meeting my Brazilian friend and saying, '2,000 per cent inflation' he said, 'Yes, isn't it wonderful... last week it was 3,per cent." nBME

Mark Mobius, Ph.D.

Executive Chairman


Mark joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios.

The World Bank and Organization for Economic Cooperation and Development appointed Dr. Mobius joint chairman of the Global Corporate Governance Forum Investor Responsibility Taskforce. In 2006, Asiamoney magazine listed Mobius as one of the "Top 100 Most Powerful and Influential People."

2012 CPI Financial. All rights reserved.

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Publication:Banker Middle East
Geographic Code:9CHIN
Date:Apr 30, 2012
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