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Mobius blames media for investor pessimism

The manager says that despite the negative news coverage, the eurozone will emerge from its current troubles stronger and that emerging markets are even better placed for growth.

By Thomas McMahon, Reporter, FE Trustnet Follow
Thursday September 27, 2012


Concerns over the global economy are exaggerated and media-driven, according to Mark Mobius, head of emerging markets at Templeton Investments.

ALT_TAG Mobius, who manages the £1.9bn Templeton Emerging Markets fund and has in recent years launched frontier markets and Africa funds – investing in the riskiest economies in the world – says that investors are shooting themselves in the foot with their risk-averse nature. 

"The popular press is biased towards Europe and towards the world economy but the numbers don’t warrant that," he explained.

"We are facing a long process of reform in Europe, but it will take place and Europe will emerge much stronger than it is now."

Julian Chillingworth, chief investment officer at Rathbones, thinks Mobius’ optimism may be warranted in the longer term, but claims there are plenty of short-term factors that mean investors should be wary; he is not changing the defensive strategy on his portfolios, for example.

"We saw last night with the riots in Catalonia and with recent unrest in Greece that the tensions are still there, and I would say they will still remain while we have high levels of unemployment," he said.

"I think we will have periods when people get more optimistic and then periods when they get less so for some years to come. It’s difficult to think we are embarking on the next big bull market."

Virginie Maisonneuve, head of global equities at Schroders, believes "snap factors" such as political unrest are holding down sentiment in Europe. However, she agrees with Mobius that the media coverage is not balanced.

"The media is carried along by the feeling of the moment among investors in general, so it doesn’t present a full picture," she explained.

Mobius claims that the media distortions can also be seen in the reporting of emerging market countries, which are often typecast as dangerous and illiquid traps for over-confident investors.

Egypt, Mobius says, is a country that appears from news broadcasts to be a worrying place to invest in, but he still does.

Templeton Frontier Markets has 4.52 per cent in the country, which does not appear in the fund's MSCI Frontier Markets benchmark.

"Despite the political difficulties, the economy continues to run and to grow," Mobius said.

The manager believes that there are signs investors are finally looking past these distortions and putting their toes back into the waters of riskier emerging market investing, recognising their caution is unwarranted.

"Investors are getting fed up with low interest rates in the West so they are beginning to look for Alpha elsewhere."

"There is a growing realisation among investors firstly that the growth in emerging markets remains very high – we expect an average of 5 per cent at least."

"Secondly foreign exchange reserves in emerging markets have surpassed those in the western world, and those funds are looking for a new home, because it’s very clear to central bankers in developing countries that they are going to make a big mistake by keeping money in US treasuries or grade-A banks."

"Thirdly, the debt-to-GDP in emerging markets is extremely low compared to the developed markets."

Mobius also thinks that investing in bonds is fraught with difficulty, making equities the natural choice.

"You could be in fixed interest but the problem is the gap between the really high quality for which you get low interest rates and the really poor quality with which you take on too much risk."

He adds that a third round of quantitative easing in the US should provide a boost to global equities, with inflation causing a flight into stocks.

Maisonneuve says that there are a number of factors that make equities attractive right now: the fact that everyone is underweight the asset class and the connected low level of valuations being key.

Performance of manager vs peer group over 10-yrs

ALT_TAG

Source: FE Analytics

According to FE Analytics, Mobius has returned 269.48 per cent over the past 10 years, compared with 258.2 per cent from his peer group composite.



 
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Geoff Downs Sep 27th, 2012 at 09:12 AM

Two things come into my mind. Firstly Mr Mobius is investing other peoples money. Secondly blame the media is often the excuse when things go wrong.
The world economy is in a mess and will probably get worse.
Mr Mobius should also remember anyway for every investor who is a winner there will be a significant number who are not.
The stock markets always need new money to be invested to pay the earlier investors.
By the way on the media issue my view is that by and large they understate the current difficulties of the world economies.

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