Globe-Trotter Flags Emerging-Markets Winners

If you’re wondering what’s going to happen next in the world’s emerging stock markets, you might want to listen to what Mark Mobius is saying.

As a top international equity manager for the Templeton Group, one of the more foreign-looking fund families, Mobius just might be the ultimate global tire-kicker. He logs about 100,000 miles a year in search of promising stocks, primarily in the Third World.

A German citizen born on Long Island who studied in Massachusetts, New Mexico and Wisconsin, Mobius now calls both Hong Kong and Singapore home. He has lived in the Far East since 1965--2 1/2 decades before most mutual fund companies got an emerging-markets glint in their eyes.

This cosmopolitan exposure has put Mobius, who’s proficient in several languages, in a good position to spot promising companies in developing countries.

Until a few weeks ago, his $1.6-billion Templeton Developing Markets Trust was the largest mutual fund of its type, although it has since been eclipsed by Fidelity Emerging Markets. All told, Mobius oversees $4.8 billion of assets invested in less-developed nations.

This is his analysis of where the next big winners might or might not emerge:

* Vietnam. With the recent move to normalize relations between Washington and Hanoi, this country’s commercial potential has suddenly been thrust to the forefront. However, it’s still too early to start thinking about Vietnam as an investment play, Mobius says.

Although the Vietnamese are setting up a stock exchange, they are several years away from having a market of any size.

“We can’t run a Vietnam fund with one or two stocks,” says Mobius, who visited the country last year. “We need 100 investments, traded and valued daily.”

The largest industrial firms are state-owned and have yet to be privatized. Another problem is government control over foreign-exchange rates.

The day when a mutual fund can invest in Vietnam is farther down the road than many Americans think, Mobius says.

* Eastern Europe. Russia so far has been a problem for several reasons. One concern is that banks in the country might be unable to safeguard a fund’s stock certificates and cash from pilferage.

“There’s a whole infrastructure that’s required to invest in (emerging) markets,” he says.

On the other hand, Mobius has already started to buy shares in former state-owned enterprises in Hungary, Poland and the Czech Republic.

* Africa. Mobius is excited about the continent’s potential. Africans have an entrepreneurial spirit, and more governments are starting to embrace capitalism.

“A privatization wave is sweeping the world, because it works,” he says.

Still, Mobius’ funds have few holdings in Africa, primarily because most markets there are very small. He figures Africa as an investment destination of any significance might still be a decade away.

* India. The world’s second-most-populous nation will eventually emerge as one of the world’s largest stock markets, Mobius predicts. A large middle class, a democratic tradition, the prevalence of English and decent economic growth all bode well for the long haul.

On the other hand, India poses numerous problems for fund managers, including the fact that its creaky financial infrastructure has been marred by recent corruption scandals.

With billions of new investment dollars flooding in lately, the system has been overwhelmed, Mobius says. This has allowed mistakes, and crooks, to proliferate.

“These old paper-based (trading) systems just can’t handle the volume,” he says. Other emerging nations also have this type of problem, but Mobius considers it worse in India.

* Latin America. “The dream of an economically and culturally unified Western Hemisphere is drawing closer,” says Mobius. Already, the United States is showing greater interest south of the border--as evidenced by the North American Free Trade Agreement.

In the long term, he figures the region’s largest country, Brazil, looms as the most attractive investment market. It’s a huge country with vast resources. Other favorites include Mexico and Argentina.

“But we’re very excited about the whole region,” he says.

* China. For the past year or two, China has been the biggest emerging-markets story. That’s not going to change, Mobius says.

“China has a long ways to go regarding economic development and the number of new companies coming to market,” he says.

Mobius, who has a doctorate in economics and political science, doesn’t think China’s political uncertainties will derail the economic progress, noting that Singapore has prospered as a one-party state.

Within a decade, he expects to see a diverse array of publicly traded companies on Chinese stock exchanges. Further down the road, the country’s stock market will eclipse Japan’s as the largest in Asia, he predicts.

As for emerging markets in general, Mobius thinks it’s important for investors to retain a long-term focus, since so many foreign bourses are highly volatile. Already this year, prices have corrected big time in Turkey, Venezuela and Korea.

“Investors have to be ready for both good times and bad, and that means having the resolve to keep sending us money even when prices are going down.”

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Much has been said and written about banks losing assets to mutual funds, but the trend seems to be weakening.

Bank outflows into mutual funds slowed during 1993, says Jeffrey M. Schaefer, a senior vice president at the Securities Industry Assn. in New York. Despite low yields, he predicts a $1.1-trillion core of time deposits will probably remain at banking institutions.

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During last year’s fourth quarter, 59.3% of the funds were subsidizing all or a portion of their expenses in an effort to retain shareholders, reports IBC/Donoghue Inc. in Ashland, Mass. That’s up from 56.5% in the third quarter of 1993 and 42.9% in late 1990.

“Should short-term rates continue to remain at these low levels in the coming year, money funds will surely continue to slash expenses to deter investors from venturing elsewhere,” the company says.

Leading Emerging-Markets Funds

Max. 1-Year 3-Year sales return return Phone Fund charge (1993) (‘91-’93) (800) Fidelity Emerging Markets None +82%+ 105% 544-8888 G.T. Global 4.75% +64% -- 824-1580 Govett Emerging Markets 4.95% +80% -- 634-6838 Lexington Worldwide None +63% +111% 526-0056 Merrill Lynch Capital 4% +69% +111% call local office Montgomery None +59% -- 572-3863 Templeton 5.75% +74% -- 237-0738

Source for performance numbers: Morningstar Inc.