Mobius: 'We have seen the worst' in China
July 30, 2015
DW: The US version of the Templeton Russia and East European Fund has recently announced its closing and liquidation. What are the reasons behind this decision?
Mark Mobius: Based on the recommendation of the investment adviser and on other factors, including small size and declining shareholder interest in the fund, the board of directors of the fund believes that liquidation of the fund is in the best interests of the fund and its shareholders.
Does this reflect a shift in your assessment of Russia's economic outlook? Will Templeton's other Russia funds be affected as well?
No. This is a fund-specific event. Other funds will continue to be managed pursuant to each individual fund's investment objectives.
The Shanghai stock market just recorded its biggest one-day loss in eight years. The Chinese government has announced new interventions, but seems unable to calm markets. Is the stock market a major test for the Chinese government?
Regarding the Shanghai stock market, it looks like we have probably seen the worst since a number of good stocks have reached reasonable valuation levels and eventually those values will be recognized by investors. The complication now is the disappointment on the part of local Chinese investors who will be reluctant to stay in the market or go bargain hunting in the short term. So we probably can expect sideward movement for a while.
The only driving momentum would be domestic growth and that will depend on government policies to inject more liquidity into the markets. The banks have been given more leeway with the lowering of reserve requirements and interest rates have come down. With lower oil and commodity prices this is another driver.
India will probably record higher economic growth than China this year. What does this mean for investment?
Modi's election has provided India with the first majority government in 30 years and a strong reform mandate. Reforms prioritize better governance, eliminating lengthy approval processes, improving the ease of doing business - which ties in with the government's broader "Make in India" campaign targeted at boosting the manufacturing sector, and low inflation.
More crucial structural reforms, such as implementation of the goods and services tax, land reform and infrastructure improvements may revive the investment cycle in the economy and boost corporate sentiments. Declines in oil prices have eased inflationary pressures and enabled the government to reduce subsidies, which have historically constituted a large portion of the government's budget. Market expectations, regarding the pace of reforms, have proven to be excessive.
Growth rates of the gross domestic product (GDP) in India have a good potential to stay above China's growth rates with these reforms, especially as the Indian economy starts from a lower base. Both GDP per capita and absolute GDP are much lower in India than in China, while the size of the population is about the same.
This should provide a good environment for investors who buy into Indian companies which manage to benefit from the improving trends. However, this doesn't necessarily mean that investors should prefer India over China. The latter also remains on a path of continued reform, which should provide investors with ample opportunities in a country which has become increasingly relevant in a global context.
Mark Mobius, 78, is executive chairman of Templeton Emerging Markets Group, which he joined in 1987. Currently, he directs the Templeton research team, based in 18 global emerging markets offices, and manages emerging markets portfolios.