Mobius has spent more than 40 years working in emerging markets, joining Franklin Templeton in 1987 as president of the Templeton Emerging Markets Fund.
He is a published author of titles including Trading with China, The Investor’s Guide to Emerging Markets, Mobius on Emerging Markets, Passport to Profits and The Little Book of Emerging Markets. He was named by Asiamoney magazine in 2006 as one of the “top 100 most powerful and influential people”.
Learn from your mistakes
The cult of Mobius, frequently disparaged as overly optimistic on emerging markets, has been waning in recent years after funds have posted mediocre numbers, prompting an exodus of investors.
While they still make money, 11 of the 13 biggest funds that Mobius oversees at Franklin Templeton Investments have underperformed their benchmarks during the past five years.
This is down to ill-timed bets on energy and mining companies and under-investing in technology stocks. At their peak, those funds held $39bn in 2011, while today they hold $26bn.
In December 2014, Mobius’s flagship Asian Growth Fund lost its long-held position as the region’s largest to First State Investments’ Asia Pacific Leaders Fund.
Looking back, Mobius concedes that underestimating the “internet trend” has been his costliest mistake.
“The problem we had [with investing in internet firms] was that these companies were not earning anything, and we are value investors. We’d say, ‘Well, how can we invest in a company that’s not earning?’
“What we should have done is said, ‘Okay, let’s look forward, let’s try and make some projections.’ That’s very difficult to do when there’s no history,” he says.
Unsurprisingly, the stalwart of developing markets investing maintains that if he had $1m to invest, he would still allocate 50% to emerging markets, 10% to frontier markets, 10% to gold, 10% to palladium, 10% to a global bond fund and 10% to a global emerging market bond fund.
Mobius says the single biggest risk to emerging markets is the ongoing tensions with North Korea, followed by geopolitical risks in the Middle East and then concerns that growth in the US will turn out to be less than expected.
“The North Korean situation is a big risk because if things get worse, it won’t be good for China, Japan or Asia and people will become very concerned.
“The other risk is the US, because we are now counting on growth. If America is growing faster, that’s great for everybody, particularly emerging markets; if that does not happen, it would be a risk,” he says.
When asked if the world’s second-largest economy China is ever likely to lose its emerging market categorisation, he says: “The Chinese would love not to be an emerging market but at the same time they’d like to have a bigger weighting in the Emerging Markets Index.
“It’s going to take many years because the definition of an emerging market is based on per capita income, where the breaking point is $10,000, so China has got a long way to go.”
Next month, the index company MSCI will decide whether to include China’s A-shares in its Emerging Markets Index, allowing foreign investors better access to a market still dominated by domestic investors.
Mobius warns it is not going to happen overnight. “It’s definitely going to happen but the problem that the MSCI has is foreign exchange control. If you have foreign exchange control, it’s very restrictive. MSCI does not want to include you in the index as people will invest and then will not be able to get out. It’s a problem,” he says.