Ep43 Invest in Emerging Markets Now?

[Watch the YouTube Video Here]

Should I invest in emerging markets 2019

The short answer is “No”! To be more specific: if markets allow it maybe later in 2019, but not now! In a recent interview, Mark Mobius was bullish on emerging markets and saw it as a perfect time to build a position in these high growth economies going into 2019. His arguments were as usual, structured, eloquent and to the point. For anyone who was listening, he made a lot of sense – including myself. Yet, he can’t be more wrong on his bullish call as of December 2018 and in this episode, I will be discussing why.

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Good Arguments to Invest In Emerging Markets

Mobius is not alone with his bullish forecast for 2019. Morgan Stanley and a row of other emerging markets experts and brokers seem like an echo to Mobius bullish call forecasting outperformance for this asset class in 2019.  But how could they do differently? Isn’t it their job to promote their asset class – after all it pays their lofty fees? And what does “outperformance” mean anyway for an absolute return-oriented investor? -17% rather than -20% for the S&P 500? Not really soothing!

Many Arguments Against Investing in Emerging Markets in 2019

Emerging markets stocks and bonds suffer exponentially from wild capital flows that happen these days. Also, in times of crises, currencies such as the USD or the JPY are considered safe haven, whatever people like Peter Shiff might tell you. They are the most liquid and most secure markets. A strong JPY and USD are always bad for emerging markets which usually borrow heavily in these currencies. Furthermore, capital-rich countries such as Japan and Europe have been and will delay investments in these countries putting more pressure on debt-ridden local companies.

In the end, the market will break and a string of bankruptcy will put a final stamp on emerging markets investment opportunities. But that is a great opportunity for 80/20 investors and smart money alike! We just have to be more patient and wait for the extreme outliers in market developments and market valuations. The patience has always paid off especially in emerging markets investing.

Mark Mobius – Emerging Markets Guru

Born August 17, 1936 (age 82)
Nationality German
Years active 1987–Present
Founder of Mobius Capital Partners LLP.
Former executive chairman of Templeton Emerging Markets Group,

For anyone who doesn’t know Mark Mobius, he is the emerging markets guru for over 30 years and my personal hero. He was on top of his game with emerging markets investing when others back in NYC or London were discussing Wall Street (the movie) or foresaw Japan as the great economic power that would rule the world. For me, he has always been the Warren Buffett of emerging markets. His value investing approach and his confident but mild manner have always made an impression on me. One could argue, he is one of the reasons, why I moved to Asia early on.

But the rise of index funds and ETFs, rapid market shifts as well as the globalization of financial markets, has had a toll on him and his firm. One could argue, that his approach to emerging markets investing has become somewhat “stale” or “old-fashioned”. He still follows the same academic approach to investing that he learned through academic channels and official literature almost 30 years back, even though we have made much progress in behavioral finance and behavioral economics in general over the last 10 years.

His most recent emerging mark calls weren’t always spot on and rumors were flying around that was one of the reasons he had had to leave his comfortable position at the top of emerging markets investing at Templeton in 2015. I would argue, that it was just a necessary generational change at the top of Templeton and at Templeton Emerging Markets Group in particular. We shouldn’t forget that the firm itself has been under enormous pressure from the likes of Vanguard, BlackRock, and Co.

And so Mobius ventured out on his own founding Mobius Capital Partners LLP fairly recently and doing what he has been known best – promoting emerging markets investing! But my major concern is that he will soon realize that this is a very different world from where he started 30 years back and without the funds and platform Templeton has always provided him and in effect insulated him from occasional bad calls (don’t mention the private jet he used jet-setting around the globe). He will soon realize that just by being  “long” emerging markets won’t work as well as it used to be. And just because he has been launching his own firm and series of funds is not a good reason to be bullish on emerging markets as of December 2018 and going into 2019.

Having said this, with the depth of emerging markets insight, vast network around the globe and value investing experience he is capable of making this giant leap at a rather late stage of his impressive career – this time as a stand-alone person. I wish him all the success and performance he deserves in his new endeavors. He will always be my emerging markets guru who brought me to Asia.