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Abu Dhabi, UAETuesday 11 December 2018

Veteran investor Mark Mobius bullish on emerging markets in 2019  

Mobius Capital Markets’ new EM investment fund raised £100m in October listing

“Now is the time to invest in emerging market stocks and 2019 will be even more so,” Mr Mobius. Jeffrey E Biteng / The National
“Now is the time to invest in emerging market stocks and 2019 will be even more so,” Mr Mobius. Jeffrey E Biteng / The National

Emerging market equities will grow in popularity next year as investors take advantage of cheap, undervalued stocks, and diversify global portfolios, while the developed market stocks bottom out, said investment veteran Mark Mobius.

Share prices in emerging markets are at their lowest discount since 2002, with the MSCI Emerging Market index down by more than 20 per cent as of September. The sharp drop was caused by trade tensions between the US and China, as well as political and economic stress in countries such as Brazil, Turkey and Argentina.

“Now is the time to invest in emerging market stocks and 2019 will be even more so,” Mr Mobius, the former head of emerging markets at Franklin Templeton Investments who now has his own company, Mobius Capital Partners, told The National on the sidelines of the Alternative Investment Management Summit in Dubai on Monday.

“There was a tremendous exodus from emerging markets, then they came back last year, and again this year people have been wary. So I think next year they will realise that developed markets are bottoming out and they must diversify globally. And if you’re in global markets, you’ve got to be in emerging markets,” he said.

In addition, the strong US dollar and rising interest rates have hit investors that borrow in the currency and made developed markets less favourable. Cheap emerging market stocks, with strong balance sheets and a good future, are increasingly appealing.

“When you look at the average price per book [of emerging market stocks], you realise they are much, much cheaper,” Mr Mobius said. “Putting all this together and knowing that bear markets don’t last long, – the average is a year and a half – now is the time to start looking at emerging markets.”

India, Turkey, Brazil and Korea are the most fruitful opportunities, he said. As of September, Turkish and Argentinian markets had lost around 50 per cent of their value in dollar terms, mainly due to the collapse in their currencies. Brazil, South Africa, Indonesia and China had all dropped between 20 and 30 per cent, while India was down by almost 8 per cent.

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Mobius Capital Partners, which was set up by Mr Mobius and Franklin Templeton colleagues Carlos Hardenberg and Greg Konieczny after he retired from the asset management firm in January, last month staged an initial public offering of its first closed-ended emerging markets fund, Mobius Investment Trust.

The trust raised £100 million (Dh471.7m) on the London Stock Exchange ahead of its October 1 listing, lower than its target of £200m. It will focus on small- and medium-sized companies in emerging and frontier markets, with a portfolio of around 20 to 30 companies – less than half the average of its peers.

Mr Mobius said the biggest risks to emerging market stocks in 2019 will be currency fluctuations, debt exposure and any failure by individual companies to adapt to technological change. Consumer industries present the biggest opportunities, including retail, trade and consumer goods – “there’s still a lot of impulse buying”, he said.

In the Middle East, Egypt is the most attractive prospect due to increasing political and economic stability, followed by the UAE.

“Dubai stocks are very interesting, but there are not enough companies with enough value for us, and not enough listings,” he said.

Across the GCC, the majority of large companies are family-owned businesses yet to open up to investors, although that is starting to change as family offices bring in external consultants to restructure and better protect their wealth, he added.