Sunday, January 31, 2010

Full Bull Run

Notes from Mark Mobius in New Zealand

Mobius manages an investment trust which it based out of the United Kingdom. About 4 per cent of the money invested in his trust comes from New Zealanders. The investment trust, which is listed on the New Zealand stock exchange, as one of the best performers this year.

"I was very surprised we have a big following here." says Mobius. It's not the first time he has visited New Zealand, five years ago he did a cycling tour of the South Island. New Zealand is not an emerging market, unless we can find a company which has over 50 per cent of its business in emerging markets."

However he has invested in New Zealand in the past. "Many years ago we did invest here in a salmon farm."

At the moment his eyes are firmly focused on the emerging economies of Brazil, China, India and parts of Eastern Europe. Mobius says the Emerging countries are in a full bull market run, which will last longer than many have ever seen.

"Bear markets tend to be very short in duration. Given all the economic factors things are looking up for these countries - GDP growth is higher - four times that of western countries, foreign reserves are high and they have low debt." There has always been a perception that emerging economies are riskier than their Western counterparts but Mobius, who has been investing in these regions for than 40 years, says that's not the case.

"If you look at what has happened in the US - the Madoff scandal, Lehman Brothers and Bear Stearns - lots of money has been lost. The corporate governance is not any better." But from a country perspective Brazil is at the top of his list followed by China and India.

Unlike China, Mobius says Brazil is self-sufficient because it has its own fuel and food. "All these factors are quite different from China which needs to import lots of things." It is China's dependence on other countries that could make it more volatile and Mobius warns the biggest risk to its growth would be a trade war between China and the US or Europe, although he doesn't think that is likely.

"Even though they are moving toward domestic consumption they are still very dependent on exporting." But he is still upbeat on China, which is predicting 8 per cent growth this year. "We think it will continue to grow, although it has to slow down eventually."

He is not worried about talks by the Chinese Government to clamp down on bank lending. "That has been very spotty - in very specialized businesses. I don't see this as a major problem, it can prevent a bubble from forming." He is convinced China can achieve growth of more than 5 per cent for the next 10 years, which is good news for countries like New Zealand.

Mobius' investment trust has grown 1746 per cent since it was launched in 1989 more than double the MSCI Emerging Market Index, which is up 854 per cent over the same time. He also had drawdowns during the global financial meltdown and market crash in 2008. The trust was down 40.8 per cent, slightly more than the index, which fell 35 per cent. But in the last year it has regained even more ground bouncing back 95 per cent in the year to December 31.

Despite more than 20 years managing the investment trust Mobius says he is not thinking about retirement. "Everyday I am learning something new. That is the great thing about this business. You have to be willing to take on new ideas and changes, you have got to be able to react to them."

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