Emerging-Market Rally Called ‘Sustainable’
Templeton Developing Markets fund manager Mark Mobius, the impresario of emerging-markets investing, says the recent rally in emerging-markets stocks has legs.
And if long-term history is any guide, mutual funds that invest in these stocks could do well not just for the next few months, but for the next few years.
Mobius, who was in Los Angeles on Tuesday to meet with clients and deliver a speech, noted in an interview that since 1969, “bull markets in emerging markets have been much longer than bears.”
His research shows that over the last 30 years, while the typical bear market in emerging-markets stocks has lasted about 1.5 years, the typical bull market has lasted nearly four.
But the last few years have been a glaring exception to that pattern. After soaring 73% in 1993, the average emerging markets fund has drastically under-performed the Standard & Poor’s 500 index of big U.S. stocks every year since.
The sector was hit first by the Mexican peso crisis of 1994, then by the Asian economic crisis.
Mobius admits that “so many people have been burned by the emerging markets that they’ve given up on them forever.”
But this time, he believes, “it’s sustainable.” For starters, banks throughout these regions are being recapitalized. “Money is going back into the banks, and we’re beginning to see a real resurgence back into these markets,” Mobius said. “And it doesn’t take very much, because the volumes aren’t very big.”
Also, newfound strength in the global economy--coupled with continued economic expansion here at home--has been a stabilizing force for emerging-markets companies.
“A lot of these countries are export-driven,” he said. “And as long as the U.S. is able to absorb these exports, their foreign exchange reserves go up,” which, in turn, strengthens their currencies, further boosting their economies.
U.S. investors have shifted so much of their investments to the developed markets in recent years--driving domestic market valuations to dangerous levels--that money is bound to move back to the emerging markets, Mobius argues.
The rally so far has pushed Templeton Developing Markets up 36% this year, after it lost 18.7% in 1998 and 9.4% in 1997. The S&P;, by contrast, is up 10% this year.
Still, over the last five years through the end of April, Templeton Developing Markets is up just 15.7% cumulatively, versus the 229% rise of the S&P.;
Mobius, who was a net buyer of emerging-markets stocks late last year, says he continues to find buying opportunities in Latin America and Asia.
His fund is now “fully invested,” meaning about 99 cents of every dollar is invested in equities. Still, he expressed some concerns about specific countries, including Malaysia and Indonesia for political reasons and China due to valuations.
