Tag Archives: mark mobius

Emerging-Market Small Caps: A Distinct Growth Opportunity

This is a fact that several of us here know and love, Small/mid cap’s are, have always been, and will most likely continue to be under-researched, under-covered, it’s just the nature of the business. The clever folks over at Franklin Templeton have just put out a short research paper on it, here are some snippets and a link to the paper.

EM small caps are far from a niche investment, despite broad perceptions. The asset class represents more than 23,000 companies with an aggregate market capitalization of close to US$5 trillion1 and daily turnover of close to US$60 billion, constituting substantial proportions of overall emerging-market liquidity and market capitalization, as the chart below demonstrates. Accordingly, the sheer size of the EM small-cap investment universe provides abundant opportunities to uncover mispriced companies

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Source: Franklin Templeton

Random Thoughts: Monopoly, money transfer, beer, Mobius, Brexit, a question?

Bill Gross – Monopoly

The latest paper from Bill Gross is focused on credit, credit growth and a usual critique of central bankers. So why bother with this? Well it’s a good concise argument that slow credit growth has led to sub-optimal global GDP growth and perhaps the original methods of running a central bank isn’t quite up to par these days.

  • A highly levered economic system is dependent on credit creation for its stability and longevity, and now it is growing sub-optimally
  • Thus, over the past 5-6 years post-Lehman, as the private system has created insufficient credit growth, the lower and lower interest rates have increased velocity and therefore increased GDP, although weakly

Source: Janus Capital 

Taking money out of Thailand getting easier?

If you have ever walked to your bank in Thailand to transfer money overseas, you’ll understand what an incredible pain it is, most of the time you’ll be dealing with tellers and managers that are rather inexperienced with international finance, and if you’re doing this for investments you’ll most likely get the transfer rejected. Now apparently things are going to get easier, but only if you have a fortune.

  • From July 20, individuals or firms with deposits or securities of 100 million baht or more can directly invest up to $5 million per year in overseas securities, Bank of Thailand Assistant Governor Chantavarn Sucharitakul said in a statement.
  • The central bank also relaxed rules on corporate treasuries, allowing them to raise funds by issuing foreign-currency securities in both Thailand and abroad from July 28.

Source: Bangkok Post

Thais still drink!

One of the best performing names listed on the Singapore indices is Thai Beverage, that’s right, a Thai company listed in Singapore is considered a best performer. I’ve been receiving a tonne of emails regarding this and I still don’t quite get it, perhaps it’s time to start going for drinks again to understand this market.

Beer sales volumes soared 61 percent, lifting the brewery operation’s contributions to group revenue to 33 percent from 23 percent. The spirits business remained its cash cow.

Thai Beverage is trading at the highest level ever relative to the broader MSCI All Country World Index.

Speculation that Charoen will further revamp his beverage businesses in Thailand and Singapore may spur more rallies in the stock, said Religare Capital Markets in a May note.

Source: Bloomberg

Mobius on Thailand

His latest paper is about Thailand and about 2/3’s of it feels like a tourist advertisement but he does make some good points on infrastructure and the economy’s resilience.

  • Thailand’s GDP growth has been stable, with a rise in tourism and domestic demand helping to offset the impact from a contraction in merchandise exports this year

Source: Franklin Templeton

Brexit

A non-event for effectively all equity markets except in Europe and England. Do I think England/UK will fall apart? Well you can take 2 viewpoints for this:

The Bear:

  • England will lose access to the EU market
  • Europe will make an example of them
  • No new FDI into the UK
  • The UK will fall apart with Scotland the first to leave
  • London will lose its place as a global financial hub
  • The pound will drop to parity with the USD and effectively be at the same level as the EUR/USD thereby implying that they have joined the Euro (my favourite)

The Bull:

  • The decrease in the pound will boost exports and tourism
  • London will maintain it’s place because money will always go to places with where opportunities exist
  • They are still part of the G5, G7, G9 (every G you can imagine), they still have trade agreements with multiple countries throughout the world
  • There will be less regulation – which is normally always a good thing

My own thoughts?

  • Well it’s old vs young, as callous as this sounds, is it right that those who have yet to still live their lives futures are decided by those who are retired?
  • I haven’t read as much about the history and the laws of the EU as I did in the past few weeks, did anyone care about Article 50 until last week?
  • Interesting that the FTSE 100 is doing ok, but the FTSE 200 which includes far more domestic companies isn’t
  • I don’t quite care to be honest, I don’t think anything really changes except that the leaders of this Brexit aren’t really leaders given they’ve quit, or refused to be PM, rather spineless individuals. Plus like any other politician in the West, a lot of lies in their campaigning. But I do think that the in the end the power of the UK voice will continue to decline over time.

Finally, after catching up on some history books in the past month, is there any politician in office today that people will respect and write about positively in the future? I can’t think of one, except perhaps Putin (yeah I said it)

Small Stars Can Shine Bright

Small caps, mid caps, love them there are always opportunities to be found like a pig hunting for truffles.  Mobius put a nice little paper sharing his team’s viewpoints on SMIDs in the region, here are some snippets and a link to the rest of the article.

  • Small caps generally have low foreign ownership levels and are often under-researched, overlooked and mispriced. The lack of coverage and transparency creates potential risks and opportunities.
  • We believe reforms taking place in many emerging markets in the region could prove to be beneficial for smaller companies. Additionally, since domestic demand is typically the main revenue driver for small-cap companies, the combination of good economic growth, a growing middle class and lower oil prices—which can help check inflation and support a lower-interest rate environment—could be an added benefit to smaller companies in the region, freeing up consumer dollars to purchase their products
  • In the United States, small-cap stocks generally trade at a premium to large caps in terms of price-earnings, due to the higher growth they can provide. When you look at emerging markets, sometimes the opposite may be true

1015_EM_SmallCapGrowth

Source: Franklin Templeton

The Fed and Emerging Markets

A nice little op-ed from Mark Mobius post the fed decision to not increase rates and its impact on emerging markets. See below for snippets and a link to the full article

In contrast to the Fed, central banks in emerging markets generally are not considering the question of raising interest rates in their home countries. The largest—China—has been working to stimulate its economy through lower interest rates and other measures.

We generally see lower inflation and, therefore, lower interest rates in emerging markets going forward, despite the threat of future US interest rate actions. At the government level, emerging market government bonds in many cases are seeing higher yields, but this phenomenon does not necessarily carry through to the private sector.

To us, the key question for equity investors in all this news is, where does value lie? With the downturn this year in emerging markets generally, equity valuations have become more attractive, with declining price-earnings ratios. Of course, with the low interest rates that we have seen, average price-earnings ratios have been moving up in the past few years. Only recently, with the downturn in the markets, have we seen more reasonable ratios. However, in many cases they tend to be high by historical standards, and therefore a careful stock selection program is necessary in our view.

Source: Franklin Templeton

Mobius: Growth Matters

Mobius makes a few good points in his latest commentary on emerging markets vs advanced markets, here’s a few nuggets and a link to the full article.

  • Growth in emerging markets has outpaced growth in developed markets by more than double
  • People under the age of 40 are typically entering the most productive years of their lives; they are actively earning income and starting families
  • Economic growth on a year-by-year basis may not necessarily result in high stock market performance, but over time improving growth should be reflected in corporate earnings

0715_GDPAdvancedDeveloping

Source: Templeton

Looking Beyond Politics in Thailand

Dr. Mobius has been a long term investor in Thailand and almost always pops up with a commentary during times of turmoil here (which appears to be every 2 years ever since I begun working here in 2004).  In this piece he covers the infrastructure bill, Thailand’s economic resilience, and below is his comments on the resilience in tourism.

mark_mobius1

If the past is any indication, the impact on tourism of the recent protests could prove relatively short-lived. When Ms. Yingluck Shinawatra’s brother Thaksin Shinawatra was ousted in 2006 in a military coup, there was little impact on tourism. And in 2013, Thailand welcomed a record number of visitors. So, if the demonstrations are having an impact, the overall picture doesn’t seem bleak at this time. MasterCard’s Global Destination Cities Index ranked Bangkok the world’s most-visited city in 2013, with nearly 16 million international visitors.3 Of course, if there is a great deal of violence there is no question that the impact will likely be felt this year. Nevertheless, our experience in Thailand through a great deal of political change and turmoil over the years indicates that the bedrock of Thai sensibility and practicality has eventually prevailed, and historically, when the turmoil has ended, it has generally been back to business as usual.

Source: Franklin Templeton

Investors Living in Emerging Markets are a Bullish Bunch!

Fantastic new commentary out by Mark Mobius, he goes into talking about the fundamentals, foreign reserves and investment sentiment in emerging markets, see below for a snippet.

According to the GISS, 58% of investors residing in developed markets believe their local stock market will be up this year, but investors in emerging markets were even more upbeat – 66% believed their local stock market would post a bullish performance in 2013. Similarly, investors residing in emerging markets expected higher returns on their investments, with an average return expectation of 12% this year and 18% over the next 10 years. Those in developed markets expected a 7% average return in 2013, and 10% over the next 10 years. I find that noteworthy as growth rates in emerging markets are also expected to be generally higher than in developed markets this year, although stock market returns don’t always directly correlate with growth rates. In addition, we believe the easy monetary policies of central banks globally could drive more assets into emerging markets.

Source: Franklin Templeton