Templeton tips emerging markets

The combination of a higher risk tolerance from investors and low interest rates is fuelling the emerging markets boom, which is showing little signs of letting up, according to Templeton Asset Management managing director Mark Mobius.

Templeton has a 20-year track record in emerging markets and claims to have introduced the first listed emerging markets fund to investors.

“Since we started [investing in emerging markets] the whole thing has grown dramatically — the number of countries has gone from five to 40, the size of the markets has gone from billions to trillions and the number of players has increased dramatically,” Mobius said.

“Growth in these emerging markets has continued and in fact has accelerated . . . you now have a situation where the two most populated countries in the world, India and China, each with over one billion people, are now growing at 7, 8, 9, 10 per cent, [with] population growing at 1-2 per cent.

“So you have per capita income growing very fast — double the rate of the developed countries.”

Mobius is also optimistic about the volatility of emerging markets as an investment option and suggested planners take a diversified approach in their clients’ portfolios.

“There is no question there will be volatility as the stock markets are volatile wherever you are in the world and you will see bear and bull markets, but the wall of money coming at these [emerging] markets is so large, so the recovery is quite quick,” he said.

“I would recommend a diversified portfolio of emerging markets as nobody knows what region of the world or what country is going to do the best.

“No one market will be the best performing year after year so diversification is very important.”

However, Mobius did caution that a major area of concern when investing in emerging markets was the apparent lack of rule of law in some countries.

“Some countries like South Africa are very good and have a well developed rule of law, and then you go to a place like Indonesia where it’s very chaotic,” he said.

“But it doesn’t affect us so much as we are dealing in an organised stock market and won’t deal with companies that don’t have audited financial statements by major auditing firms. It’s when you get into private equity and you have to go to court that you encounter problems.”

Templeton has been selected as one of three multi-managers in the new FirstChoice Asian Share Fund, which launches on April 30.

Franklin Templeton Investments Australia is looking to launch a unit trust version of the Templeton Global Emerging Markets Fund in July this year.

This fund will invest in the broader emerging markets universe.