Fund manager sees opportunities in Asia--Templeton's Mark Mobius says he's been buying throughout SARS outbreak

By RICHARD BLOOM The Globe and Mail-INVESTMENT REPORTER Monday, June 2, 2003 - Page B14

Closing Markets

Friday, Jun. 6 S&P/TSX 12.01 7046.88 DJIA 21.49 9062.79 S&P500 -2.38 987.76 Nasdaq -18.59 1627.42 Venture 7.07 1100.4 DJUK 2.18 170.63 Nikkei 128.64 8785.87 HSeng 55.62 9694.63 DJ Net -1.25 56.95 Gold (NY) -5.00 364.50 Oil (NY) +0.54 31.28 CRB Index +1.27 237.43 30 yr Can. -0.03 4.96 30 yr U.S. -0.01 4.38 CDN$ buys US$ -0.0076 0.7386 Yen +0.0000 87.7700 Euro +0.0030 0.6316 US$ buys CDN$ +0.0139 1.3540 Yen +1.2300 118.8400 Euro +0.0127 0.8551

TORONTO -- The deadly SARS virus doesn't scare Mark Mobius -- and neither does what seems to be an endless wave of political and economic uncertainty around the world.

Welcome to the world of emerging markets -- one which Mr. Mobius, who runs Templeton Asset Management Ltd.'s emerging markets fund, says is ripe for solid returns. However, you must have the stomach for some wild swings, he cautioned.

"The best policy is to buy when things look bad, when newspaper headlines are saying bad things about emerging markets because that's when prices are depressed and there are opportunities," he said in an interview last week.

Mr. Mobius, based in Singapore and known as one of the world's authorities on emerging markets, says he's been buying Asian stocks throughout the SARS outbreak.

"Asia is particularly interesting because the depressing effect of SARS is making a lot of those stocks attractive," he said during an interview.

Shares of Singapore Airlines Ltd., Cathay Pacific Airways Ltd. of Hong Kong, and TravelSky Technology Ltd., a Chinese aviation and tourism software maker -- all names that many money managers might not have touched -- are buying opportunities, Mr. Mobius said. While those companies' profits and stock price runups likely won't come overnight, returns through 2004 and 2005 could be impressiv, he said.

Like his funds, Mr. Mobius, 63, is truly global. A week ago, he was in New York City. Last Wednesday, he was in Russia. Thursday he was in Toronto (where he conducted the interview for this story). Friday, he was in Finland.

The Templeton emerging markets fund was launched in October, 1991. Although its one-year return was down 17.4 per cent as of April 30, it still exceeded the performance of the sector's benchmark, Morgan Stanley Capital International's (MSCI) emerging markets free index, which was down 21.46 per cent. The Templeton fund is up 2.8 per cent from 10 years ago, while the MSCI index is up only 2 per cent. Mr. Mobius's fund jumped 7.4 per cent in April and another 1.4 per cent in May, buoyed by the rise in stock prices partly on the back of the U.S. dollar's fall.

Mr. Mobius said the combination of low interest rates and the sliding U.S. dollar is good news for shares in countries with debt in greenbacks. Debtor countries with U.S.-dollar debts, "which got them into trouble in the first place," will now find their debts easier to pay, he said. For example, he said, many countries with loans at an interest rate of of about 8 per cent can now refinance, and repay at 3 per cent.

"What it means is countries will begin to dig themselves out, and companies will be able to dig themselves out.

Mr. Mobius said he's also bullish on Turkish stocks, which were volatile ahead of the U.S.-led war in Iraq as investors speculated whether the country would support the campaign, and how the Turkish economy would be affected.

He also likes South Africa. He cited the recent rise in its currency, the Rand, and the successful international expansion of many of its major corporations.

But risks caused by political turmoil in Africa are too great to lure him into other countries in the continent, Mr. Mobius said.

He's also not investing in Venezuela, which has been hammered by civil unrest. He has only a small stake in Argentina, which is in the process of reviving economic stability after a recent massive currency crisis and debt default.

The mere appearance of a political crisis doesn't necessarily spur Mr. Mobius to sell.

In Brazil, it was feared that recently inaugurated President Luiz Ignacio Lula da Silva would introduce left-leaning policies and spark a drop in the value of the country's currency, stocks and bonds. "We were buying when everyone was afraid of Lula. That's worked out very nicely," Mr. Mobius said.

He hinted that despite emerging opportunities within emerging markets, investors must buckle their seatbelts when deciding to climb aboard. "Growth -- that's what [it's] all about," Mr. Mobius said. "The countries are growing, the markets are growing, that's the main story. There is volatility, just like in any market. The swings can be sometimes quite wide."

Some emerging markets stocks that he's buying right now include:

Banco Bradesco SA of Bazil. With the recovery of that country's economy under way, Mr. Mobius said he expects banks to do quite well. He called Bradesco "one of the more efficient banks," with "a very sophisticated" computerized system and a strong retail base.

Kimberly Clark de Mexico SA de CV of Mexico. The country's largest producer of paper products is highly profitable and receives technical support from its operations in the United States. But more important, Mr. Mobius added, it has a strong manufacturing and marketing base in Mexico.

San Miguel Corp. of the Philippines. San Miguel is one of the largest beverage makers in the country, and also has growing operations throughout Asia.

Hyundai Motor Co Ltd. of South Korea. Mr. Mobius said the auto maker is "very successful," is beefing up operations in China, and is a major player globally.

Akbank of Turkey. Mr. Mobius said Turkish interest rates are likely to begin to fall as the government tries to boost the economy. Akbank has "a lot" of government bonds in its vaults, which will churn higher capital gains when rates go down, he added.