Today we are going to make reference to an article published by Bloomberg where a panel of 5 experts give their opinion on the assets in which they think it is more convenient to invest at this time. One of these experts is Mark Mobius, founder of Mobius Capital Partners and former executive chairman of Templeton. His recommendations have called us especially the attention for the enormous coincidence with our strategy that we have been implementing for some time from the Cluster Family Office. We are going to summarize and comment on the arguments and proposals of Mark Mobius to the readers of Bloomberg, which we subscribe to absolutely.
At the end of the eighties, emerging economies only weighed 5% of the global market, but now they represent more than 40%, and rising. In those years, investors could not invest in more than half a dozen exchanges, and yet now we have more than 70 markets open to growing foreign investment. This currently allows a huge diversification, and marks the way forward: It is time to invest in certain emerging economies -or already emerged- where a tremendous recovery and economic growth is taking place.
For example, the Brazilian stock market has risen 40% from its minimums. And it still has a long way to go, as each sector will benefit from the reform being implemented by the new government of Bolsonaro (political-ethical discrepancies apart). The entire political environment of the country is radically changing as a result of the implacable persecution of the corruption that is taking place.
Take for example Petrobras, one of the largest oil companies, which is changing its entire organization chart from top to bottom to ensure that there are no more cases of corruption to be in tune with the new government. All the companies have put their batteries on issues of corporate governance, in the line of ending corruption so that the State does not settle fatally on them. This is very positive for international investors, since with more rigor and order, the Brazilian consumer sector will benefit and will do especially well in the coming years.
Political data have even been aligned with technical analysis, since many markets have drawn a long-trend double bottom. Regarding the fundamental data, the most defining for the investor, we still see prices with respect to profits and book values attractively low in many of the emerging economies, which we do not forget are the economies that go with the wind of economic growth and with the demography in favor.
Russia’s PERs are only multiples x5, that’s even below Pakistan’s ratings. If we add to that the advances in terms of corporative government, what Putin is implementing, the Russian stock market is really very cheap.
Following with the fundamental data, we like the companies oriented to the internal consumption of India, whose economy is already practically growing at 8% annual levels. The software sector in India is very bi and we like medium-sized companies that are adopting new technologies to, for example, start / increase their online sales. The Byzantine distribution system in India is being modernized redically thanks to technology, tax reforms and the elimination of taxes between the different regions of this sub-continent. This will be vital and will greatly boost the movement of goods and trade. Despite the intrinsic difficulties that still exist in India, Amazon and Walmart are getting local businesses into their game.
It is true that there is still a lot of insolvent credit that damages the accounts of the big banks in India. And the government is going to take charge of rescuing them and recapitalizing them conveniently, which will affect the price of the currency. But this weakening of the Rupee will be temporary, do not forget that the central bank, despite its stormy relations with the party (BJP), has been effective historically. Mobius says he would put 30%, of that million dollars referred to in the article, in India.
What about China?
Its potential is enormous, both for the Cantonese companies listed in Hong Kong, and for the A-shares listed in Shanghai. And its market economy perfectly planned by the Jinping government is an oasis of prosperity for the western investor, plunged into the wilderness of Western developed markets.
It is also more than interesting to look for companies that have won a commercial war with the USA, which has more political overtones than real economy. One of the clear winners to be noticed, although we have already noticed him on the merits of his own growing economy, is Vietnam, which is hosting companies in the south of China that relocate or simply expand. In fact, and as a significant anecdote, the failed summit between Trump and the North Korean president Jong Un was made in Vietnam because the American government wanted to show Jong Un the Vietnamese model as an example to be followed by Cores del Norte.
The model evolution, from a strong communist economy like the Vietnamese one, towards a growing and prosperous market, and without loss of governmental control. And all praised by the president of the USA, live to see.
And the same happens in the rest of Southeast Asia, where everything is still to be done and the middle class has a tremendous future ahead. Mexico is also benefiting from its recent agreement with the USA and Canada. And is that world trade is like a big balloon, if pressed on one side is swollen on the other.
In short, Mobius fully coincides with our positioning in Russia, Vietnam, China, India and Brazil. And this positioning is materialized through managers of local institutional funds who know at heart the political, legal, accounting and economic characteristics of their respective countries. The result translates into spectacular and consistent alphas. And fortunately fund-of-funds options are beginning to emerge so that smaller investors (with a minimum of $ 125,000) can access these large emerging institutional funds that do not even have retail classes.
The reasoning, then, is diaphanous: We must abandon the traditional markets belonging to developed economies because they have and will have the wind against them for at least a generation. Its economic growth is and will be anemic, and its aging and unproductive demography supposes and will suppose an insurmountable burden so that the future quotes of its companies grow. It is true that some western companies are trying hard and desperately to look for invoicing to Asia. But nobody should be aware that it is much more productive to invest directly in Asian companies that concentrate all their turnover and growth in domestic economies with GDP increases and overwhelming demographics.