Chinese equities will stand out, Mobius says
China equities will continue to outperform those in developed markets this year despite increasing inflationary pressures and interest rate rises, according to emerging market guru Mark Mobius, executive chairman of Templeton Asset Management.
'Inflation would be the main risk this year,' said Mobius, who manages more than US$42 billion of assets in emerging markets. 'But there are risks everywhere. If we were worried about risks, then we wouldn't be able to get out of the doors [in the morning].'
Mobius is bullish on the consumer sector and on commodities but not so keen on airlines and telecommunications.
One of Templeton's emerging market funds, Templeton China World Fund, had Hong Kong-listed subsidiaries of mainland's state-owned enterprises such as China National Offshore Oil Corp, China Shenhua Energy, PetroChina and Bank of China as its top 10 holdings.
'We like the consumer sector and this includes consumer banking,' he said. 'We also like the oil and mining companies.'
The consumer price index will reach between 4 and 5 per cent, according to Templeton, which also forecasts gross domestic product for China this year will grow 8.7 per cent, similar to estimates from other fund managers and investment banks.
He attributes the underperformance of the broader A-share market last year to the strong response for initial public offerings, which made a strong comeback on the mainland, soaking up a significant amount of liquidity from listed stocks to higher valued new companies.
The initial public offering markets in Shanghai and Shenzhen sizzled last year, raising more than US$66 billion, according to a report by Ernst & Young.
Mobius said most of these new offerings were too high and better priced deals were often oversubscribed so he would rather invest in the secondary market.
'We look for bargains,' he said. 'Emerging market equities are still cheaper even if they were more expensive than before. We're looking at growth rates in five years and their price earnings are higher than the US [companies].'
He believes liquidity will stay in emerging markets, adding that there was 'no reason' that it will flow back to the US market.
On the subject of China's foreign reserves, Mobius said the yuan was in a 'vicious cycle': China did not want a strong currency fearing it would hurt exports but it had attracted more people buying the currency hoping it would appreciate.
Apart from China, Mobius saw good investment opportunities in Thailand, India and Vietnam. 'We are also in Pakistan. A lot of people think investing there is dangerous, but we don't think so.'