With China and inflation two of the biggest topics on investors’ radars, the timing could hardly be better for our chat with emerging markets guru and veteran fund manager Mark Mobius for Financial News’ Money Masters series.
Tough talk on a tough nation
“China is big. There are so many different opportunities. If you’re a global investor, you’ve got to be in China,” Mobius, founding partner Mobius Capital Partners, which has around $350m in assets under management, told FN. After more than 30 years at Franklin Templeton, Mobius launched his own emerging markets-focused venture in 2018.
“China being so big in the capital markets and in emerging markets, when the Chinese market goes down, the index goes down and there’s a natural reaction among some people to say they are worried. They tend to lose faith and don’t want to be in China,” he said.
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“When we talk about a crackdown in China, if you look at it closely, many of these companies have gone beyond the bounds of what a US or European company would be able to do. They engage
in monopolistic practices or have been involved in sectors that they had no business in — some property companies were producing electric cars or issuing mutual funds.
“So it stands to reason that the Chinese government would pay attention, particularly when these companies run into financial difficulties,” he added. “China is governed by a communist party whose objective is to bring wealth to as many people as possible and create a level playing field. That is why these crackdowns are a good thing. It means there will be better corporate governance in China.
“When you have this kind of situation, there are lots of opportunities for small and medium-sized companies as they have more chance to compete with the big players. It is a mistake to abandon the country in light of its size and potential.”
Looking past CPI
When it comes to the risks of inflation to investors, Mobius said: “It is not about the CPI [consumer price index]. Those numbers are not an accurate reflection of what’s really happening. What’s happening is currencies are being devalued with increased monetary supply. With a money supply increase, you will obviously have a currency devaluation. Those people smart enough to be investing in companies that have a good return on capital and can raise prices in line with currency devaluation are doing very well.”
Mobius added: “People should not pay attention to pronouncements about the end of tapering. Money supply going back 20 or 30 years does not go down, it keeps going up. If you look at interest rates, you’ll find the correlation between the S&P 500 is not very high.”
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“On one side, you have currency devaluation; on the other, you have a technology boom that is making things cheaper…What central banks and governments should be shooting for is not inflation, but deflation. Deflation means that those in lower-income segments of society will do better.
“Investors should consider holding 10% of their portfolio in physical gold. The idea of gold is that it is emergency money. It is a form of currency that will be recognised no matter what happens.”
Financial News’ Money Masters series canvasses views from the very top investment professionals in the world on where markets are heading, and how to get ahead of the trends. Stay tuned to hear from Blue Whale’s Stephen Yiu, and make sure you catch up on our conversations with LGIM chief investment officer Sonja Laud and Research Affiliates founder Rob Arnott.
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