Against rampant volatility in established markets, Franklin Templeton’s Mark Mobius believes investors will gain from greater performance and falling macroeconomic risks in emerging and frontier market equities.
Volatility is not always harmful for investors, says Mobius. To escape the worst effects, the Franklin Templeton team puts aside capital each month, and seeks to buy companies when they are cheap. They are finding firms with less than 10 times price to earnings ratios.
As valuations pick up, they do not always sell but wait for valuations to increase further. Annual portfolio turnover is less than 20% in the FTIF Templeton Asian Growth Fund, with an average holding period of less than five years. For the FTIF Templeton Frontier Markets Fund, turnover is 18%.
Much of the extreme volatility seen in recent years is driven by derivatives trading, says Mobius. In 2011, he predicted another financial crisis was imminent because of growth in the unregulated derivatives market. Even now, he examines the derivatives held by firms when considering whether to invest in them, due to the huge losses that can be incurred.
"Banks don't want to let go, because sometimes there can be huge profits," he says.
Consistent with his formidable reputation as a contrarian, Mobius thinks threats to global growth are overstated. The OECD composite leading indicator of 34 economies has shown a recent upturn. Even the effects of the eurozone crisis are an exaggeration by British mainstream media.
The euro currency demonstrates continuing resilience, signalling investors' faith in the currency, he says. To gain from growth in Asian markets, Mobius seeks consumer opportunities arising out of an improvement in GDP per capita combined with the desire to access technologies and brands.
Car sales have jumped in China, Indonesia, India, and Brazil. Internet users in China and Brazil have rocketed since 2002. Both Chinese and Indian consumers and firms have significantly increased their share of total world imports over the past decade—helping to supplant a fall-off in European demand.
Commodities, although affected by sharp spikes in volatility, have shown an overall better long-term performance due to continued demand from emerging markets for copper, platinum, nickel, sugar, soybeans, corn, rice, wheat, gold, and crude oil, to cover everything from feeding populations to producing goods, machinery, and electricity.