“Now is the time to invest in emerging market stocks and 2019 will be even more so,” Mr Mobius. Jeffrey E Biteng / The National
“Now is the time to invest in emerging market stocks and 2019 will be even more so,” Mr Mobius. Jeffrey E Biteng / The National

Markets

Mark Mobius sees no bottom for emerging market stocks yet

Chinese market is under pressure as equities in Shanghai face headwinds, Mr Mobius says

Bloomberg

July 30, 2018

The bottom for emerging-market stocks remains some way away, especially in China, said Mark Mobius, partner and co-founder of Mobius Capital Partners.

Equities in Shanghai face multiple headwinds, including debt, the influence of technology stocks and the ongoing trade conflict with the US, Mr Mobius said in an interview with Bloomberg TV in Hong Kong.

“In the case of emerging markets, there’s a good chance we’ll get a recovery after continuing declines, but in the case of China you’ve got a number of problems,” he said. “We’ve been expecting a 30 per cent decline and we’re now about 20 odd per cent down in emerging markets, depending on which index you look at.”

China, he said, can keep its economic engine running by pushing the One Belt One Road infrastructure initiative.

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“One Belt One Road means you’re able to then export a lot of know-how, a lot of technology, a lot of equipment and so forth, and thereby stimulate the economy without the help of the US.”

Mr Mobius said he is keeping an eye on the yuan, with Beijing likely to be tempted to use the currency as a weapon in its trade war with the US.

“If I was sitting in Beijing and thinking about employment, and if many of these people are working for exporting industries, I would want a currency that’s very competitive. I certainly wouldn’t want a stronger currency.”

In terms of Turkey, he said the country is in a very, very interesting position with both the currency and the stock market weaker.

“It’s a big economy, there are great companies in Turkey,” he said. “There will be some liabilities, some problems moving forward but I think Turkey is a place we want to look.”

In India, another big emerging market, Mr Mobius said the Reserve Bank of India, should actually cut interest rates to drive investment given the number of states in the nation with disparate economic conditions.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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