MARK MOBIUS, EXECUTIVE CHAIRMAN, TEMPLETON ASSET MANAGEMENT, IS INTERVIEWED AT BLOOMBERG TV
AUGUST 29, 2011
SPEAKERS: Mark Mobius, Executive Chairman, Templeton Asset Management
MARK MOBIUS, EXECUTIVE CHAIRMAN, TEMPLETON ASSET MANAGEMENT: Isn't it wonderful? The markets are down. That's the time I'm very, very happy. Unfortunately a lot of our clients are not too happy.
And I remember during the last downturn during the Asian crisis I was in Edinburgh, Scotland. And you know the Scottish don't like to lose money. And this gentleman called in. By the way my name is pronounced Mobius and this gentleman called in. Apparently he was a holder of our emerging markets fund. He said, "Now, about this emerging markets fund, I'd like to talk to Dr. Dubious." So we have to be very [hard].
What I'd like to do today in twenty minutes because we'll leave enough time for questions, which is the most interesting part of these events, I want to give you a quick outlook on where we are within the canvas . And of course the first thing is performance. How is the emerging markets' performance?
And if we look at the ten-year performance we see that emerging markets have outperformed the world and the US market by a very, very wide margin. If you look at the five-year performance, again, emerging markets have outperformed by a very wide margin. If we look at the 2010 performance, again, emerging markets have outperformed by a wide margin, but if you look at the recent since January, actually emerging markets have underperformed.
And I know a lot of people thought they had [sales], not it's finished for emerging markets. No, it's not over. Why? If you look at history the last ten years emerging markets outperformed full years of these nine out of ten. This year I don't know what's going to happen by the end of the year, but it's not surprising that it might outperforming, but I think it will probably surge up again and outperform.
So what I'd like to do is give you the reasons why we feel that the markets are behaving in the way they are. In order to understand the markets you've got to understand supply and demand. It's a marketplace.
If there's too much supply the market's not going to do very well. If there's too much demand the market is going to be doing very well because the prices will move up, but what happens is when the markets go up you see a lot of new supply coming in.
And if you look at the supply numbers for emerging markets since 2000 you see that back then emerging market IPOs and follow-on issues represent about ten percent of the global IPO and follow-on issues area. Now in 2010 it went up to 50 percent of the total. So we've seen a lot of new issues coming in.
This gives the numbers. Of course that blue line is the index, and of course when the index goes up in '07 we had a very bullish market. The number of IPOs went up to roughly $370 million, $380 million - billion dollars. And last year we saw over $460 billion in IPOs, so obviously lots of supply and that tends to have a depressing effect on the market, which by the way I think is great because otherwise we would have had a bubble.
If we look at where the IPOs are coming from you'll see that China has grown dramatically compared to the US. Back in '08 China represented maybe about one fifth of the US IPO market. Now in 2010 they surpassed the US.
If we look at emerging markets, emerging markets after years of being under the US now is far, far greater than the US, and of course the US the largest market in the world. So we're seeing a lot of supply coming in from emerging markets.
Okay. How about demand? Where's demand coming from? If we look at the total market capitalization of emerging markets, and by the way market capitalization is calculated by multiplying the number of shares outstanding in all these markets by the price. Of course when prices go up the market capitalization goes up. And if the number of shares goes up market capitalization goes up as well.
If both go up then we really have a big increase, but you can see that since 1998 when the percent of emerging markets was eight, anywhere between three to eight percent, we're now up to 34 percent. So when people ask me what percent should I have in my portfolio in emerging markets I tell them that would be 34 percent because that's the market. That's the percent that it is in the global market, but most people have between three to eight percent in emerging markets, that yellow bar. Unfortunately they don't list them at the bottom. They don't buy at the bottom.
My sister-in-law when there was big boom before the Asian crisis in emerging markets went into our emerging markets fund. The next year when the market tanked I had to visit my brother in Buffalo, New York. And I remember knocking on the door. I heard her voice behind the door. "Who's there?" I said, "I said it's Mark." "I'm not opening the door and give me my money back." I said, "If you'll open the door I'll tell how to get your money back." She opened it up and left the chain on the door. She said, "How?" I said, "Buy more." She slammed the door in my face.
This is the situation where you have in these markets very, very few people have 34 percent in their portfolio in emerging market stocks. And I'll tell you there are a lot of reasons why it should be more. And it's happening because you can see the net inward close into emerging market funds like our own growing very rapidly, as you can see from this chart.
What are the fundamentals? Why do we think that people should be in these markets? Well, first of all it's all about growth. Emerging markets this year will be growing three times faster than the developed countries, US, Japan, Western Europe, three times faster, even the most pessimistic forecasts.
By the way, I decided to downgrade our China forecast and then I looked at the consensus, the recent consensus is up. It's not down. If you look at China and India this year the consensus is that China will grow by nine percent. India will grow by almost eight percent compared to 1.7 for the US and a minus number for Japan.
So the growth is there. There's no question about it. The next years, and by the way, another thing I think we have to get straightened out is some people who have been saying because some people I cannot fathom. There's no relationship between the stock market and economic growth. I don't know where they get this, but I think I've figured it out because they've done correlation analysis.
They say, okay, let me take January to December and correlate the stock market with the economic growth. And it's a negative number. They don't correlate. Why? Because the stock market is a leading indicator. It moves up before the economy moves up, so of course there's no correlation. It doesn't mean there's no causation. The causation is definitely there. There's a strong relationship between economic growth and the health of the stock market because companies depend on economic growth.
