Thursday, May 21, 2015

Mark Mobius on the market and volatility

Mark Mobius of Franklin Templeton expressed his views at the Morningstar Investment Conference held this week in London. He also spoke to Emma Wall, editor at morningstar.co.uk.
Below is an excerpt from his presentation and interaction.
The state of the markets across the globe…
Since 1988, there have been three bear markets. We're definitely in a bull market now. China is one example; it's really going up a lot. India has been doing very well.
Of course, in every bull market there will be periods of decline, there will be corrections which can be as much as 20%. But you could still be in a bull market over the longer-term.
Potential in emerging markets….
The headlines are usually very bad about Africa. But if you go on the ground, if you look carefully at what is happening, you will find out in fact there is a lot of opportunity, tremendous opportunity.
Take Nigeria for example, you read about Boko Haram and all these problems. But there are viable, great companies in Nigeria in which we've invested and they make money and they are doing very well.
Eight out of the top 10 fastest growing economies last year where African, thanks to supportive fundamentals – young populations, commodity rich and technology savvy. So much of Africa’s resources are untapped – both commodity resources and human resources. I think that Africa will soon emerge as the manufacturing hub of the globe.
Volatility….
Volatility has increased not only in emerging markets but in developed markets. In all markets now you are seeing much more volatility. Look at the price of oil, the way it's been jumping up and down. It doesn't mean that the demand for oil has changed that much, but the price has been very volatile.
Volatility may create investment opportunities – but it spooks investors, causing them to crystalise losses.
Market volatility is worse now than it has been in the past, thanks to quantitative easing – the huge volume of cash that has flooded global markets from money printing in the U.S., U.K., Japan and now the Eurozone. In the last 11 years there have been three instances of market underperformance but right now we’re on the up.
What threatens investors’ returns is volatility. We like volatility as fund managers because it creates buying opportunities but our clients don’t. Unfortunately the volatility index shows that market fluctuations are happening more often due to central bank policy. Investors will have to accept that there will be these bumps in the road.
Threats to the markets…
Derivatives pose the greatest threat to markets. There are $691 trillion in derivatives globally – but the global economic output is only $77 trillion. This seems an extremely high number.
IPOs…
Of the new companies floated on stock markets globally every year, 33% of them make their IPO in emerging economies. Of these, around 30% of them are suitable for investment.
In emerging markets, the problem is not so much corporate governance, but liquidity, because many of the new issues are small. So if they are running at maybe 0.5 million a day in turnover, it is very difficult for big funds to buy. So, I would say of all the IPOs maybe, 20-30% could be purchased by normal large emerging market funds.

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