Templeton’s Mark Mobius focuses on bigger picture

Mark Mobius, executive chairman of the Templeton Emerging Markets Group and portfolio manager for $53bn (€40bn) worth of assets, has seen too many street protests and uprisings in his time of scouring developing markets to be surprised by any recent news in the Middle East, North Africa or Latin America.

“You see the young Brazilians on Facebook and they are clearly fed-up with the corruption around them,” he comments on recent demonstrations in Rio de Janeiro. “In the long-term, these events are very positive as we will have a free and open society, but there will always be tremendous resistance from the establishment, as corruption is endemic.”

Meeting Mr Mobius for dinner, his sharply-pressed beige suit and love of Tabasco sauce typify his philosophy of investing: a thorough, organised approach to exotic markets, with a touch of spice to keep the portfolio interesting.

As one of the first managers to get excited by markets as diverse as Vietnam, Romania and Turkey – having launched Templeton’s Emerging Markets Investment Trust (Temit) in 1989 – the parallels between “Springs” raring up in various countries including Turkey, Syria and Egypt does not escape the attention of this old campaigner.

Although the conflicts appear political or idealistic to outsiders, there is always a commercial element, with business clans reluctant to give up hard-won ground to rival commercial interests connected with opposition groups.

“If you are a businessman standing against the government in one of these countries, you can suddenly have a case opened against you by the authorities and find you owe $2bn in back taxes,” says Mr Mobius. “If I was in their shoes, I might want to back the protest more surreptitiously,” he smiles.

Fund managers have recently fallen foul of governments for outspoken views on their political systems, so he is probably more circumspect than usual in his comments. In Turkey, for instance, foreign “interests” have been accused by market regulators of manipulating bourses for profit.

This is a change from the old days, when his main foes tended to be business groupings. He remembers the mid 1990s in Turkey, when his efforts to instil valid corporate governance in a Turkish company which Templeton had invested in was thwarted by a large expatriate Balkan family which became a majority shareholder. Despite all his efforts, they used connections in government and the courts to repel every reform Templeton tried to bring. “At the end of the day, it simply wasn’t worth it.”

Last year, he was strolling along the Dalmatian Coast in Dubrovnik during a short holiday and dropped into a hotel for an evening drink to watch the sunset. “Imagine my frustration when I looked at the nameplate above the bar and saw that the place I was drinking in was owned by my deadly foes from 20 years ago,” he laughs. “It taught me that at the end of the day, you don’t fight those battles you can’t win.”

Mr Mobius’ love affair with developing countries dates back to the 1970s, when he studied at Massachusetts Institute of Technology. “My initial study of economic development led me to where I am now. The concept of the emerging market didn’t exist in those days,” he recalls. “You had the rich economies and then the poor, under-developed countries in the South, which the US and UN were trying to help out of poverty.”

He became fascinated with conducting research into the factors which could boost poor countries’ growth, what he calls “the secrets of development”, such as investment in natural resources production and building transport infrastructure including railways.

This led to a scholarship in Japan and research postings for Monsanto in Korea, Thailand and Hong Kong. Even in those days, he could see around him developing consumer markets as well as the centres for cheap manufacture being exploited by much of the developed world.

One of his early successes was advising the holders of rights to manufacture Snoopy toys in Korea that they also had a growing market of young consumers on their doorstep. “I suggested we should start selling these toys in Asia, not just manufacturing them there.”

However, his cautious nature meant that when he eventually progressed to fund management, he was reluctant to commit all of the $100m he was given to stocks, despite pleas from investors. “I thought $100m was too much to invest back in 1989. There were only five markets open to us in those days,” he says.

These days, the caution is still there, but the youthful fear of new opportunities has gone.

Among recent innovations championed by Mr Mobius has been Templeton’s Luxembourg-registered Shariah Asian Growth fund, which he feels has been a key player in Malaysia’s investment market and should also appeal to clients interested in socially responsible investment mandates.

“ESG oriented investors could do well through buying into Sharia funds, as these ban stocks related to smoking, drinking and gambling,” says Mr Mobius, although he is himself slightly put out by the restrictions of some of the countries he visits. “You’re out for an evening in Istanbul and then at 10pm, somebody says: ‘no more drinks.’ It’s the kind of thing that can be a bit annoying,” he says.

Islamic scholars, he believes, are faced with a real challenge to decide which investments are acceptable or ‘halal’ and which to define as ‘haram’ or forbidden.

“Running a Sharia fund, you have a list of restrictions and you have to get by,” he says, although the situation is seldom cut and dried.

“You are invested in a company, which is doing well, and then suddenly it does something which contravenes Sharia principles. What do you do? The scholars are often looking at a moving target.”

As a veteran of emerging markets investing, Mr Mobius is sometimes perplexed by the choices of other investors, especially when it comes to countries such as Indonesia where family, political and business interests can be closely linked.

“When Nat Rothschild made his investment in [Indonesian coal-mining company] Bumi Resources, we were shocked,” he says. “We knew these people, we had bad experiences with them in the past and thought ‘how could he go into this venture?’ We are very selective in our Indonesian investments.”

In the longer-term, Mr Mobius remains bullish on Indonesia. Key to the future of South-East Asian stocks will be flows of Japanese money, he believes.

“We don’t yet know what the impact of Japanese money will be,” he says. “At the moment, it looks as if it is more likely to go into South-East Asia than China. And if they are investing $2tn, the impact on those markets will be quite significant.”

He is not as pessimistic on China  – where he has made some of his best investments, including bringing windmill parts manufacturer China High Speed Gear to the market four years ago – as some of his competitors. Yet through his regular visits, he remains well aware of factors hindering growth.

“You do have ‘ghost cities’ that have been built in China, but property prices continue going up and people are clearly in need of better housing,” he says, with a likely boost to mortgage lending helping to finance this development.

There is also constant social emphasis on buying property, which will continue to drive up prices. “The pressure from families in China on their youngsters to get married and have children of their own remains intense,” says Mr Mobius. He worries about excessive lending, where householders over-extend themselves, as happened in Korea. “But we are not at that stage yet,” he says.

More broadly, across both developed and developing markets, he has a major fear. “The current economic model might be rejected and countries could go back to a socialist model.”

Yet Mr Mobius’ education and his experience in Asia has shown him that the most successful systems actually combine the two. “In reality you need a bit of both,” he says, pointing out that Singapore’s founder, Lee Kuan Yew, has led the way with this combination.

“One of his innovations was insisting government employees be paid in line with or better than the private sector. After all, running the state means you are running the economy, which is the equivalent of a huge organisation.”  

Into Africa

Templeton’s latest marketing push involves the promotion of its Africa fund, launched in 2012, investing in companies in Nigeria, South Africa, Kenya and Ghana.

With more than $90m (€66m) invested in the fund plus other African positions worth more than $1bn in the group’s $3.5bn Frontier fund, Mr Mobius still believes Templeton has far “too little” invested in the African continent.

“We are 14 per cent up since inception, so we have to get out and sell this story,” he says, acknowledging that rival groups are now jumping on the African bandwagon.

 “The fund launches are good news for us as they will start driving up stock prices,” says Mr Mobius, although the claim from competitors is that Templeton’s fund has already bid up share prices to unrealistic levels.

“There are liquidity issues, there is no question there,” he admits, but he sees big opportunities in sectors including banking, consumer-related companies and oil production.

Mr Mobius is however occasionally criticised for investing in stocks linked with dictators in countries such as Robert Mugabe’s Zimbabwe. "Ideally, we'd like to be invested purely in democracies in developing regions," he says. "But in reality, many of these nascent democracies face challenges."