Wednesday, March 18, 2009

Marky Mark On Markets

Well, we have two Marks. Marc Faber, the famous Dr. Gloom and Mark Mobius, the Yul Brynner wanna-be from Templeton Emerging Markets. Surprisingly, both sounded pretty similar this time around. I generally agree with both, but 20% in 2009 is a bit low to me.

Marc Faber: China and other emerging markets offer value over the next two years as growth picks up, investor Marc Faber said. Investors should buy stocks and other assets in China after the market falls to its 2008 low to profit from an expected recovery, Faber said in an interview with Bloomberg Television. China is the world’s best-performing stock market this year.

“Rapidly growing countries have setbacks from time to time,” Faber, the publisher of the Gloom, Boom & Doom report, said in Hong Kong. “I think we’re going to test the lows again, but over the next two years, it’s probably a good time to invest.”

The MSCI World Index has retreated 18% this year, extending last year’s record 42% slump, amid concern the widening financial crisis and global recession will sap corporate profits. The Shanghai Composite Index, which tracks the larger of China’s two mainland exchanges, has gained 16% in 2009.

China is betting that a 4 trillion yuan ($900 billion) stimulus package and interest-rate cuts will help it reach its 8% growth target this year. The global economy is expected to expand at a 0.5% expansion, according to the International Monetary Fund. Industrial and precious metals are attractive investments after the Reuters/Jefferies CRB Index of 19 commodities “collapsed,” Faber added. The CRB Index has dropped 8% this year, adding to the 36% retreat in 2008.

“Asset markets have already discounted a lot of the bad economic news,” he said. “ Some assets like commodities are very, very inexpensive.”

Faber had advised buying gold at the start of its eight-year rally, when it traded for less than US$300 an ounce. The metal topped US$1,000 last year and traded at US$932.78 an ounce today. He also told investors to bail out of US stocks a week before the so-called Black Monday crash in 1987, according to his website. He continues to favour gold, which has gained 19% in the past six months because currencies including the US dollar are “not desirable”. Stock markets are “not particularly expensive” and investors should consider buying them in anticipation of a recovery, Faber advised. The MSCI global index is valued at 11 times reported earnings, half its 10-year average multiple of 22.

“We also have a lot of equities that are not particularly expensive because they’ve collapsed,” Faber said. “These are relatively sound companies and whenever the recovery will come, they will be in a strong position.”

Mark Mobius: Veteran fund manager Mark Mobius sees a potential 20% rise in emerging market stocks in 2009 and views extreme investor pessimism as a signal to gradually start buying equities. "The danger we face now is being too pessimistic," Mobius, the executive chairman of Templeton Asset Management, a division of San Mateo, California-based Franklin Templeton Investments, said in a telephone interview with Reuters.

“We are seeing that slight bottoming out, that we have to be cautious of because if we are caught with too much cash, specifically when we are looking at very good bargains, then we are going to be in trouble with our investors,” he said.

Latin America and Asia are the two favoured regions with China and Brazil among the top country picks. Select countries such as Egypt and Turkey stand out among harder hit regions. “Eastern Europe is pretty much a disaster”. He believes China’s stimulus plan will help it achieve its 8% GDP growth target this year, helping pull up Asia which increasingly sells more of its goods to the world’s third largest economy. Brazil’s diversified economy and growing consumerism also make it attractive, he said.

Mobius manages roughly US$20 billion in emerging market assets out of the firm’s US$377 billion assets under management. Asked how high emerging market stocks might go by year-end: “If you really press me I would say 20% would not be unlikely, and the reason I would say that with some degree of confidence is that we have already come up.”

MSCI’s emerging markets stock index fell 54.48% in 2008. While the index is down 9.46% year-to-date, it has risen more than 15% from its four-year low in October. The Templeton Developing Markets Trust, the main US registered fund Mobius manages, is down 11.44% so far this year after dropping over 57.77% in 2008, according to Reuters data. Cash levels for his portfolio fluctuate between the preferred level of zero and 7% he said. He characterises them as “normal, or certainly not higher than normal”. During the 1997–98 Asian financial crisis, cash levels in his funds reached 20%.

While market volatility may not be over, a market bottom could be in place, Mobius said when asked at what point in the next 12 months investors might claim they’ve cleared a hurdle. “I’m saying that now. I'm feeling that now because of the incredible pessimism that you see everywhere. That usually is a pretty good sign that we are over the hump,” he said.

“Almost universal pessimism is usually a very good time to be buying equities because equities lead the economy,” by six months to a year he said. Famous for his globe-trotting and “on the ground” research, Mobius said of a recent trip to Latin America that while companies were preparing for the worst, customer orders were still coming in and “a lot of them” are maintaining steady investment programmes. On the ground things look OK but with a slower pace. That is on the investment side. The valuations now are very very attractive, even if we do a big markdown on earnings,” he said.

p/s photos: Nia Ramadhani


Jasonred79 said...

... If pessimism is shows a bottom, doesn't that mean that China market is not at bottom, but Easteren Europe has probably bottomed?


Ah, the trouble with contrarionism...


In a sense, it's true though... I think investors in the Russian market might have made BIG when they went in after Russia defaulted on all it's debt...

Anyhow, to me, people are still too optimistic about China... they're all expecting great things, hoping for it to pull up all of Asia, for crying out loud... yes China has been importing more and more, but a lot of those imports are unfinished products which China needs to re-export. Actual CONSUMER CONSUMPTION in China is pretty low...

Personally, I'm a nobody, compared to these big-names. But I feel that, totally opposite to what they say, Eastern Europe markets will bounce back as soon as people think "it is not as bad as we thought".

And I think China market will start collapsing more once people start realizing that China is not going to be as glorious as the picture people are painting right now. Seriously, at the moment, China really has a lot of expectations to live up to... it's being treated like the Champion of the World or something.

I think China will either meet expectations (in which case market will make a small rise), or it will underperform to expectations, in which case markets will fall quite significantly.

Pat said...

I had an opportunity to attend a Mark Mobius talk in KL about a month ago. One question posed to him by the floor on what areas Malaysia had in terms of business advantage. His answer.. tourism and agriculture.

Scary but not suprising, though I hope he;s wrong though..for our sakes.

Jasonred79 said...

Why is it scary that Malaysia has an advantage in tourism and agriculture?

The one other advantage area is Oil&Gas, if you believe Petronas annual reports, we have one of the most efficient oil companies in the world?

richard said...

I also believe tourism is a v good area for future growth in malaysian economy and Mark is right on the mark if politicans aren't racial or religious about every issues.

Pat said...

Jason, in terms of development on these industries (agriculture and tourism) in comparison with the our neighbours, we are quite far behind. We had a chance (or many chances) to develop agriculture industry but we didn;t. And now its going to take a lot of political will amongst other things to change things (but I wouldn;t bet on it). Scary..because these industries in point were never the top priorities in terms of execution and I don;t think it ever will (I hope I;m wrong though).

Just my 2 cents worth.


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