While emerging markets have taken their licks this summer, Templeton Asset Management’s Mark Mobius says the declines offer more of a buying opportunity than a sign of long term trouble for EMs.
“At Templeton, we’ve repeatedly championed our value-driven philosophy by frequently buying at times others are most pessimistic,” Mobius recently wrote in commentary on Templeton’s website. “This is not easy to do, even for seasoned market veterans. During the past few months, emerging markets have been subject to such pessimism. These periods of short-term volatility are certainly not new to us, and don’t change our long-term conviction of the potential emerging markets hold. We feel recent declines were overdone and based largely on irrational investor panic, and have viewed the recent pullback as an opportune time to search for bargains for our portfolios. We find valuations in many emerging and frontier stocks particularly attractive right now.”
Mobius says he isn’t concerned with what happens this year or even next year as much as he is with what will happen over the next five years. And over the long term, he thinks that the strong growth potential and low valuations present in many EMs makes them very attractive. He also notes that many EM countries are building large foreign exchange reserves that are much greater than those of developed market countries, and he says EMs tend to have lower debt and more room for fiscal and monetary stimulus than developed markets.
But Mobius also stresses the importance of being selective within EMs. “Being contrarian or value-driven doesn’t mean we will necessarily buy anything we can get our hands on during a market downturn,” he says. “During times of extreme stress, liquidity is important. If I have a choice between a small, illiquid stock and a large liquid one, naturally I would pick the latter. When buying stocks during a bust period, it’s important that you don’t buy corpses which have fallen in price but have unhealthy fundamentals (otherwise known as ‘value traps’), but rather, find patients with good recovery prospects that appear undervalued.”