The Hindu Business Line : Post correction, Indian stocks are attractive: Mobius

The Managing Director of Templeton Asset Management, Mr Mark Mobius, believes the recent round of sell-offs in emerging markets was triggered mainly by an increase in interest rates. Mr Mobius says that if US growth slows down as a result of higher interest rates or high oil prices, then emerging markets will be hit further.

Excerpts from CNBC's exclusive interview with Mr Mark Mobius:

Can you characterise what has gone on in emerging markets over the last three months or so. How severe has it been?

We had a 22 per cent decline, but it has now spread all over the place. Turkey was down 40 per cent and Malaysia was down 10 per cent. So there have been a lot of differences between different countries. We have seen an opportunity to buy because we see that valuations are still good, despite the fact that we had this tremendous bull run.

Clearly the latest conflict in the West Asia is separate from what you have seen in emerging markets in terms of the sell offs. What triggered this most recent round of selling?

The trigger was mainly due to an increase in interest rates, particularly in Japan and also in the US, where a number of hedge funds were borrowing money to go into emerging markets. They were borrowing cheap money and going into emerging markets. And as rates went up they had to get out. So I think that was the real trigger.

But at the same time rates in emerging markets are not going up, they are actually going down?

That's right, of course not in all emerging markets. Some rates are going up in some markets. Rates in many of the emerging markets have been going down, while US rates have been going up. But the money going into emerging markets of course has come from Japan, from the US and that's where the rates have begun to interrupt.

Tell me where you are finding value now?

Right now, of course Turkey is one place where we are finding value; South Africa is another place where we are finding value and selectively in some places like Taiwan, Brazil and very selectively in Russia.

In terms of sectors, which sectors are you favouring now?

Two sectors: consumers and commodities. We are big on oil and other commodities, we think that there has been an overshooting in some areas but still with the correction, these companies will be still making a lot of money.

You do think that this oil story has lags and it's going to continue going. A lot of people wonder if in fact even though we have got crude oil at $73 a barrel, if some of the stocks have gone ahead of themselves?

That's true. There is no question that alternatives are going to come in. I was looking at Alberta oil sands and if this comes in, it's going to increase the supply. But that's expensive oil. So even at $40 a barrel, the companies in which we are investing will be making a lot of money.

Tell me some of the other sectors, which you are finding value in?

On the other side of course is consumer. We are very bullish on consumer because we have seen in the last 4-5 years, in emerging markets per capita income is going up by 50 per cent compared to 25 per cent in the developed countries.

So we are seeing tremendous opportunities in many consumer areas.

Loans, mortgages, and personal consumer spending have been blossoming in these countries.

We see a better standard of living increasing throughout the emerging markets that we see things like credit cards and banking services take hold, right?

Exactly. That's where the excitement is. Also in other areas, for example cell phones, now there is almost 400 million cell phones being used in China today and that's growing at millions a month. That's another area just products — product sales.

What are you selling right now? Is there a market or economy, which you are not going to touch?

That's a difficult question. Maybe, some of the Indian stocks have gotten somewhat expensive but you see with this correction, even Indian stocks have begun to look good again. So we are not really selling anywhere in size.

What changes this situation as far as the opportunity around the world given the recent sell offs?

US growth. If US growth slows down as a result of higher interest rates or high oil prices or whatever, then emerging markets will be hit and the globe will be hit, everybody will be hit.

But we are seeing a slow down already, right? We got the GDP report out today and it was 2.5 per cent. It was a slow growth?

It is a great concern of ours to see slow down on growth.

We have to watch that very carefully.