February 19, 2009 – Valor Econômico
Mobius says it is a good time to invest in the stock market
Mark Mobius, General Manager of Templeton Asset Management, is optimistic. Responsible for one of the largest portfolios of shares of emerging markets in the world, he believes in a restart of investments this year, after the wave of withdrawals which happened) last year. Templeton portfolio lost 15% of assets in emerging markets - or $ 2.5 billion of a total of $ 20 billion - from October to December, peak of market turbulence. Now, as he says, the situation changed. Interest rates are declining worldwide, including in Brazil, and governments are injecting trillions of dollars into the economy. "Where are investors placing all this money?" asks Mr.Mobius and he also gives the answer, that is: in shares. Part of it may buy gold, which is another way to be protected from the devaluation of currencies and inflation, admits Mobius. But gold pays no dividends, nor produces capital gains, so the answer is shares, and, as he says "I'm even investing, privately, more in shares" .
Mark Mobius of Templeton, says he is optimistic regarding Brazil and that he is buying more shares.
Mobius came to Brazil last week, has been riding his folding bicycle at Copacabana (he always carries it on his trips, all over the year and chatted with Value on markets and investments.
Valor: How do you see the shares markets, amidst the international crisis?
Mark Mobius: I'm optimistic. The best way to escape from the impact of inflation and devaluation of currencies which should happen within a certain time, is buying shares. With all the money the U.S. government is injecting into the economy, there will certainly be several dollar devaluations ahead. Buying gold can be an alternative, but gold doesn´t pay interests nor dividends. It is interesting, however, to invest a few money in physical gold, in coins or bars, for emergencies. But the best thing is to buy shares.
Valor: Do you think inflation can get very high?
Mobius: Yes, we shall have high inflation indices all over the world, beginning with the United States. Then, other countries will devaluate their currencies to stay competitive, causing a pressure on local prices. However, the most important now is to inject money into the economy in order to give resources to the market, but the question is how to interrupt this measure when the inflation will increase. This should not happen so soon. So far, the crisis continues and inflation is low, so the BCs feel free to cut so much interests and inject large amounts of money into market economy.
Valor: What is the risk of depression in the U.S.?
Mobius: It's small. If we look back at the 30s, there is no comparison with the present situation, which is completely different. There was no guarantee of bank deposits, social security, and aid programs for unemployed people, at that time. This is a very different situation. I am not saying that is not serious, because it is very serious, especially for banks. But it does not affect so much other sectors. The problem we are living is a bank problem and the government is trying to solve it, injecting resources in banks.
Valor: Should it be necessary to nationalize the institutions?
Mobius: As a matter of fact,, the government has almost done that. By receiving shares in exchange for loans to said institutions, the authorities are taking control, establishing limits to staff pay sheet and more. But I think they should work more quickly and take at once the full control of banks. They should also quickly, separate the good from the bad assets and eventually sell back the good bank to the private sector. What they are doing today is trying to save banks´shareholders. And the reason why they are behaving that way is because some members of the Government belonged formerly to the staff of those banks, like the former Secretary of the Treasure, who was one of the top executives of Goldman Sachs;
So they must save these shareholders. People are obviously disappointed because things are not being made as fast as they should, in order to solve the problem.
Valor: With this scenery of high inflation and slowdown economy, what are the opportunities of the market?
Mobius: All these measures should have a stimulus effect in stock market. Investors and managers do not want to leave the money in the bank if they receive interests below 1%, while inflation is 3%, or maybe 4%, a year. They will prefer to invest their money in shares or "private equity", or start or expand their own business. I think we are beginning to see that.
Valor: But how long will inflation and commodities stay low?
Mobius: We shall probably notice a change in 2010, 2011, . The markets have already recovered part of the losses, emerging markets have already recovered around 20% from their capital in last October. Even in the U.S., there are good companies which survived thanks to good brands and good cash flow. There are sectors with high technology, companies with strong brands such as Coca-Cola, Pepsi, restaurants chains, high-tech companies which are facing difficulties, but should recover.
Valor: Banks are the worst industry?
Mobius: Even in the U.S. there are healthy banks, with well-structured businesses which didn´t suffer with the building crisis. And there are opportunities, on the international market, with banks like the HSBC, a major global network, with a strong presence in Asia, China, India.
Valor: what are the best opportunities on the emerging market?
Mobius: We are mainly looking at companies in China and Brazil - which is in very good shape. Then, there are India, South Africa, Turkey and Russia. These are the countries we are presently looking at. Among all sectors, we like consumer goods, AmBev, for example, and regarding commodities, we believe that prices have fallen too fast and should back up. We are also looking for energy and oil companies, like Petrobrás, Brazil, LUKoil, Russia and PetroChina, China. These companies are very solid. We also like Vale. Even if the price of iron falls 50%, it continues earning much money. There are copper industries, which should also have a good long term performance.
Valor: What sectors do you dislike?
Mobius: There is no sector that I particularly dislike. . We do not like companies with high debts or narrow margins. Today, cash is what is most important. So, we look for companies with high cash returns and a great potential to survive. We see opportunities in telephone companies, for example, which have a strong component of consumer goods, and are strong cash generators.
Valor: And the banks?
Mobius: We are being selective. Most banks in emerging markets didn´t have problems with the "subprime". We can mention Bradesco, Itaú and some banks in Thailand which are in a very good situation. And they have an important component of consumer goods, too, so invested in these institutions.
.
Valor: Does the return of protectionism worry you?
Mobius: This is the biggest concern today. Some people fear that Barack Obama government decide to adopt a more Protectionist Line and that would be a disaster. But I do not believe that will happen, because, looking at the past, this kind of policy is bad for everybody. We must keep an eye, however, on this subject..
Valor: How are your investments in Brazil?
Mobius: We have about $ 3 billion invested in shares in Brazil. The Franklin Templeton uses to have $ 10 billion, including stock income. Brazil represents about 15% of the total of $ 20 billion in the portfolio of Templeton shares. The largest investment is in China: US$ 5 billion. Brazil part stays the same. The only country that has recently joined the others is China, which became very attractive.
Valor: What makes Brazil attractive?
Mobius: the prices of shares are very cheap compared to profits and the value of its assets, management quality is also very good, the economy is quite satisfactory and should grow from 2% to 3%. Governance is improving and natural resources are amazing. We see opportunities here in commodities, banking and telecommunications, as well as in consumer goods companies.
Valor: How can Madoff affair produce changes on funds ?
Mobius: The fraud certainly produces an impact on the market. People will most probably be more cautious on where to invest, look at the reputation of the companies which get the money, check thoroughly all management, custody and control activities. The lesson we can get from that incident is that even intelligent people can be cheated. The SEC (Securities and Exchange Commission, the U.S. CVM) is going to change the controls.