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Tag Archives: #EM

EMERGING MARKETS – EQUAL WEIGHT IS 32%

I had the pleasure of hearing Singapore based Mark Mobius, Ph. D. (Economics, MIT) Executive Chairman, Templeton Emerging Markets Group keynote speech at the Asia PE-VC Summit 2016 held 30 September 2016, run by Deal Street Asia / mint asia.

http://www.dealstreetasia.com/stories/mark-mobius-54493/

Dr. Mobius was born August 17, 1936 (six years younger than Warren Buffett, born August 30, 1930). Nobody can rock a baby blue two piece suit and white shoes better than Mobius. Style and substance are rarely brought together in such a seamless fashion. At 80 year young, he is beyond sharper than a tack and offered a great deal of insight to a crowd, on average 45 year his junior.

Templeton has $28bln invested in 70 global EM markets at present, sprouting from a kernel of $100 million circa 1987. In South East Asia, the focus has been on PIPE deals (Private Investment in Public Equity). EM is up 1848% over the 1987-2016 period.

What keeps Mark up at night, other than travails of being 80, can best be summarized as the three i’s;

1.) Interest rates – Global Central Banks are the classic non profit maximizing counterparty and Mobius thinks they are destined to “make a mess” of it. Negative interest rates are far from a rational state. In terms of rational equity valuation, almost any p/e multiple can be justified in an environment of negative rates, 100 OK, 200 sure. Mark questions the mentality of said central bankers, overly influenced by academia,  economist and other charlatans (my term). Specifically called out was Ken Rogoff’s “Curse of Cash” as poppycock.

2.) Isolationism – Both with respect to trade and investments. A damaging trend. Little comment required on this point. Mobius grew up in Boston, Mass. but long ago relinquished his US passport and holds a German passport (his father was German and his mother was Puerto Rican) and a Singapore tax domicile.

3.) Internet – On-going game changer, especially in EM. Largely a mobile phenomenon.

China, still a monster growth story. It is all about the absolute numbers. Growth is slowing, but the absolute numbers are bigger every year (10% growth in 2010 is smaller than 7% in 2015 given the absolute size of the economy).

Biggest take away:

The people you are dealing with is the most important factor in investing, over the long haul. Having  a legal agreement is of course required, and governing law important, but typically if it gets to the stage of lawyers and the courts, the result is a big zero for all involved. Word to the wise, word to the wise indeed.

My current public market favorite instrument for EM exposure is WisdomTree’s Emerging Market High Dividend ETF, DEM, yielding 4.15%, ytd 2016 performnance +20%, AUM $1.6bln. No home country bias, as a global citizen. JCG

Follow me on twitter; Caleb Gibbons @firehorsecaper

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ARGENTINA – EM BOND PARTY TIME?

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Latin American issuer Argentina (B- rated as of last week) returned to the bond market with great fanfare, raising $16.5bln across four maturities, making it the largest ever EM bond issue. There were over $68bln in orders for the debt issue which allowed the 10 year (largest) tranche to price a full 50bp (0.50%) tighter than initial price talk. The bond rallied in the gray market, with the $6.5bln of 10’s trading up $1.60-$2.10 in price terms in late Tuesday trade.

Argentina was rewarded for being market-friendly (legacy default on $95bln of debt in 2001 aside) and having a pragmatic administration at the helm. 15 years “in the box” was deemed to be enough by the market and the recent uptick in emerging market sentiment was pushed to full advantage.

Over 60% of bond proceeds ($10bln) are earmarked for hedge funds and other investors, led by billionaire Paul Singer’s Elliott Management, who recently won a protracted court case against Argentina with respect to defaulted Argentinian debt. 15 years is a long time to wait for a 10 bagger. Thirty years is also a long time to hold a B3/B- sovereign credit with a 8% coupon. JCG

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