Mobius Gets His Wish--1/12/98
The emerging-markets guru wanted a chance to buy cheap. Now he's got it.
Lawrence A. Armour; Mark Mobius
Mark Mobius, the dean of emerging-markets investing and a dead ringer for Yul Brynner, has always claimed to prefer adversity to prosperity. Good times, he says, lure investors into complacency and drive stock prices to unsustainable levels. It takes a good crisis to give value-oriented investors like him a chance to snatch up stocks at distressed prices.
Mobius should be careful what he wishes for. In the Asian market debacle that began Oct. 27, the $15 billion in closed- and open-end funds that Mobius manages for the Franklin Templeton fund group have been pounded. Among the wounded is his $4 billion flagship, Templeton Developing Markets Trust, which has dropped 20% over the past seven weeks. (Even so, it still ranks tops among emerging-markets mutual funds for the five years ended Nov. 30.)
How is Mobius reacting to the chaos? True to his word, he is buying. I caught up with the globetrotting manager by phone over one ten-day stretch last month in Zurich and London, where he was updating financial backers; in Singapore, where he dropped by to pick up some clean shirts (he lives there and in Hong Kong); and in Bangkok, where he was meeting with executives of companies whose shares his funds own. <Picture: Mobius>
Mark, are things as bad as the headlines suggest?
Worse, when it comes to psychology. We're reaching the point of despondency. People are saying, I'm fed up, I can't take it anymore, I'm never going into these markets again. Stocks are being dumped on small volume, which makes things volatile. But it also makes for opportunities. It's October 1987--or Mexico in 1994--all over again.
Is this the time for bottom fishing?
I've always liked the Rothschild quote that says the time to buy is when the blood is running in the street. We've been buying since all this began, so some of the blood in the street is ours, but you can never hope to call the absolute bottom. I can point to instances in the past when people waited and the market flew away from them. We've seen historic drops in Asian stock markets. If you want to get meaningful positions, now's the time, because no one knows when the opportunities will come this way again.
What is your cash position at this point?
Anywhere from 5% to 15%, depending on which fund you're talking about. The big fund is about 8% in cash. We had more, but we've been putting it to work.
Why do you say this reminds you of the Mexican crisis in 1994? Aren't there significant differences?
Sure. One major difference is the severity of this downturn, which is much greater. The Mexican disease did not spread as far and wide and to such a great degree as the Thailand disease, which says something about the globalization of these markets.
How could problems in a little country like Thailand topple an entire region?
It started in Thailand, so Thailand gets the bad rap, but the merchant bankers of the world were also making very aggressive low-cost dollar loans in Malaysia, Indonesia, and Korea. <Picture: Mobius>
Are things better in some countries?
Hong Kong is in relatively better shape than most because it is a more open market economy with less government interference. It's also more cynical, which is good. In Hong Kong the people have learned to look out for themselves.
How does the rest of the region rate on your cynical scale?
Hong Kong is the most realistic and worldly. Indonesia has had a free foreign-exchange market for some time, but they made a lot of dollar loans, and the panic hit them as well. Japan has a Pollyanna attitude toward what government can or cannot do, which is bad. The South Koreans are perhaps the most sheltered and most unrealistic.
The IMF has teed up some $57 billion for South Korea. What does that mean for investors?
It means that Korea is going to have to restructure not only its financial institutional framework but also its thinking and psychology. This will be difficult because there are huge loans outstanding, and the big companies owe favors to various people, and various people in the government owe favors to the big corporations. We're also talking about relationships, social fabric, and customs. Changing that will run into resistance that could very quickly turn into antiforeign sentiment. People want to blame someone else. It's a natural human reaction. I have no doubt that Korea and the other nations will bite the bullet in the end. But it's not going to happen overnight.
Where are you buying these days?
Thailand, Hong Kong, and to a lesser extent Indonesia, Malaysia, the Philippines, and Korea.
Last I looked, the Thai market was down nearly 80%.
It's actually 82% below the 1996 high. The country is in the throes of a banking crisis, and the whole system is going to be reorganized, but Bangkok Bank, Thai Farmers Bank, and Siam Commercial Bank should be survivors. Advanced Information Services, which operates mobile phone systems, should do well. So should Jasmine, which is a holding company of various telecommunications companies.
Hasn't the Malaysian market also taken a pounding?
It's down more than 60%. The Malaysian government still hasn't gotten its story straight, so it's not clear whether this is a good time to be buying, but we're beginning to see bargains. Our emphasis here is less on the banks and more on industrial companies. Malayawata Steel is a fairly efficient company that should be quite competitive following the devaluation. Malaysian Shipping, which has extensive operations in all parts of the world, is another interesting company. <Picture: Five Tempting Tigers>
What do you like in the rest of the region?
Barito Pacific, which is in timber and plywood, and getting into pulp and paper, and Polysidno, which is in textiles, are strong Indonesian companies. Philippines Long Distance Telephone, which has improved its operations significantly, is one of our long-term favorites. We also like Bank of the Philippine Islands. Kolon International, which is a conglomerate based on textiles, is a Korean company that should make it.
How about Hong Kong, which hasn't been hit as hard as the others?
The Hong Kong market is down about 30%, but there are still good values. Hong Kong will continue to be the window to China and will benefit from what happens in the Chinese market, which suggests the opportunities going forward are good. We like Hong Kong Bank, which is strong not only in the Far East but also in Europe and Latin America. We also like Swire Pacific, a conglomerate, and Cathay Pacific Airways.
Which brings us to Japan, a market that everyone seems to hate.
I actually like Japan, but they've got an attitude problem, no question about it. They've got to get over this insularity and the feeling that they've got to export but not import. The key here is "reciprocity," and I don't think it's a word that translates into Japanese.
They have recently let some companies go under.
They're beginning to realize they can't go on the way they've been going. They will change, but it will be a very painful process because the mutual obligations and all the complex social arrangements that have worked so nicely in the past are being torn down. It will be painful and difficult, but some of the blue-chip Japanese stocks--some, not all--are worth looking at. Canon, Casio, Sharp, and Sumitomo are a few that look interesting.
I suppose this crash will teach Asian officials as well as investors a lesson about risk.
Sure, and then they'll forget, just like we all do. Thailand has been through tremendous crashes and booms in the past. Hong Kong too. There will always be cycles, and we will always have booms and busts as long as governments have a role in fixing exchange rates, determining interest rate policies, and printing money. |
