Asia’s lead manager

Franklin Templeton Investments is one of the world's largest asset management groups with over $640 billion in assets under management on behalf of over 20 million private, professional and institutional investors. Mark Mobius has been president of the flagship Templeton Emerging Markets Fund for 20 years, covering the world from his base in Hong Kong. An acknowledged pioneer in emerging markets investing, in 2006 Asiamoney listed Dr Mobius among the ‘Top 100 most powerful and influential people’. The TRADE Asia spoke to him both about Asia as an investment region and his engagement with investment opportunities around the globe.

From your perspective, is there anything that unites the Asian markets or is the term just a geographical convenience?

It's a geographical convenience, but one half of everything we have is in Asia. By Asia, we mean anything from India eastward. That said, the markets in the region all have their own individual characteristics. For example, take India and China. I think you'll find they're quite different. The make up of each market is quite distinct. In India, the biggest categories by far are IT and pharmaceuticals, whereas in China, it's energy, coal and banks. Now some of what foreigners can or cannot buy depends on government regulation. In India, there are certain restrictions on banks and how much you can buy. But the characteristics of these markets are nevertheless quite different. Of course, in a bull market like we're seeing, everything seems to be going up, but if you look at it closely, the differences become apparent.

If you examine Taiwan and Korea they are also quite different, one from the other. Thailand and Malaysia, again very different. Some of these differences are cultural, some are economic and some are political. Let’s take Thailand: Shin Corporation was one of the largest cap stocks in the country. Suddenly, it becomes one of the smallest in terms of turnover. Why? Because of political events and the Shinawatra family selling out to Temasek in Singapore. Clearly there will be political influences as well as economic ones.

Do you think investors from within the region have a better handle on those kinds of differences than investors from outside, or are they pretty equal in terms of market knowledge?

There's no question that the local guys will have insights into the political situation that foreigners might find difficult to learn about or to understand, but that's not necessarily an advantage in all cases. You can get too close and become biased and that can inhibit you from doing what you should be doing: buying or selling at a certain point in time. That's one of the reasons that we have people on the ground, but we also have people looking at these markets from afar. We try to mix the two approaches.

Have you ever been dissuaded from making an investment by anyone downstream from you – your trading desk, broker or custodian?

No. In some exceptional circumstances, we'll get news from our traders about something that happened after we made the investment decision. For example, something has happened after the market has opened and a trader will say, ‘do you really want to do this?’ But it happens very seldom. Brokers on the other hand have an uncanny habit of recommending stocks that have already gone up a lot. I suppose they have good reasons. Once a momentum has built up in a stock, there's a lot of trading and maybe they want to keep that going. You get some terrific research out of some of the brokers, but some of their recommendations are not so good. We rely on our own analysis and documentation.

When it comes to your own trading desk, how do you judge whether they've done a good job?

Well, their job is to get the best price and the best volume on any particular day. It's pretty clear. Sometimes we go beyond that and we say, ‘look, you've got to buy this much or sell that much and do the best you can.’ But you can get a pretty good idea of how they've done over a period of time, say a week or so.

Does that also apply in the more frontier markets where you can't get comparable data so you can't look and see how other people are doing?

There, in some ways, it's even more apparent. You know that the turnover is very very low, very difficult. If it's an illiquid environment and if they're not doing a good job, they'll move the market. Usually you can separate the men from the boys in the small illiquid markets.

How much interaction do you have with your trading desk on a daily basis, given that you're not often there?

Quite a lot. In fact, we just had a call with our trading desk, talking about some general issues, IPOs and other things. Within the investment group, we have an order desk that puts in orders which then go out to our trading desk. So there's a lot of interaction there, of course.

How clearly defined is your exit strategy when you go into a market for the first time? Do you always know how you're going to get out if you have to get out?

We know what the turnover is. Some of the turnover numbers are not that reliable, but we've got a pretty good idea. You must remember that much of the time we'll go into a stock with no real timing plan to get out unless it reaches a certain price level. If all goes well, as the price moves up, volumes will move up and it will be easier to get out. But we tend to hang in there. If the stock is very cheap, we're prepared to hang in and wait. If it takes five years, it takes five years. Our turnover is quite low. We've got around a 20% average turnover on our portfolios a year.

Of course it will happen from time to time that we'll buy some stock one day and sell the next, but that's not the norm.

To what extent do efficient market practices help or hinder your investment strategy? In other words, do the most attractive investment opportunities often depend on the nonparticipation of mainstream institutional investors, at least in the beginning?

There's a very interesting point on this. Ten years ago, compared to our current assets under management we had maybe one third of the AUM and the number of stocks we had at the peak was around 600. Now, the most we have is 100 and the AUM has gone up dramatically. That tells you a lot about liquidity and the ability to get in and out.

Do you have any red lines at either a company or a market level that would stop you from investing in what would otherwise be an attractive opportunity?

The single biggest and most important negative factor would be foreign exchange controls. That is something that I look at very carefully. If there is any hint of foreign exchange controls coming around the corner, we're out of there. Venezuela was good example. We didn't want to be anywhere near a market where we wouldn't be able to get money out. There can be blood on the streets, there can be rioting, but as long as we can have the choice of exiting, we can deal with any eventuality.