Mark Mobius, president of Templeton Emerging Markets, is struck by the “strong dissonance” between events in emerging markets and the “frightening subprime news” coming out of the US and UK markets. He errs, perhaps unsurprisingly, on the side of optimism.
How, though, to reconcile the conflicting signals emanating from media and economists? In Tuesday’s FT Insight column, Mobius reports back from a one-month swing through Latin America that businessmen throughout the entire region are upbeat and planning for much more growth. Even in Mexico - which is bound to feel the impact of a US slowdown more than other Latin American countries - “the mood was sanguine”, he says.
The evidence to date seems to indicate that not only Latin America, but emerging markets in general “do not necessarily have to succumb to a US recession”.While “decoupling” is indeed a buzzword, there’s “no such thing” as decoupling in today’s world of greater communications, investment and trade: “Whether we like it or not we are bound together”.
That, however, can work both ways, argues Mobius. Emerging markets this year are expected to experience an average GDP growth of 7 per cent, while developed markets (the US, Japan, Europe, UK, Australia, and New Zealand) are expected to grow at an average of a little more than 2 per cent. “Is it not possible that the emerging markets’ growth might tickle the economic giants of this world a little?”, he asks.
And regardless of how the current situation develops, any bear market will not last long, says Mobius, noting that Templeton’s studies of emerging markets indicate that bull markets last longer than bear markets and bull markets go up, in percentage terms, more than bear markets go down.
We suppose he should know: “When I started investing in emerging markets in 1987 with $100m, I never imagined in my wildest dreams that today I would be investing $40bn in emerging markets”.
But we cannot forget that during those 20 years we lived through eight bull and bear markets. The bear markets went down by an average of 33 per cent and lasted an average of seven months. But each one of those bear markets was followed by a more impressive bull market with an average rise of 124 per cent continuing an average 24 months each.
The most impressive rise started in December of 1990 and lasted a glorious 47 months for a rise of 251 per cent.
So, concludes Mobius, given the “dramatically improved fundamentals in emerging market countries”, their future is bright indeed. And the best time to invest in emerging markets is when you have money.
