Monday, December 11, 2006

Emerging markets Guru sees 2007 as good year for International Equity

Emerging markets performed very well for the past few years. Will this continue in 2007 also? Emerging markets Guru Mark Mobius believes so. Following is the news from Reuters.

A flood of money being sent overseas by U.S. investors, reasonable equity valuations and worldwide optimism all indicate 2007 will be another good year for international markets, emerging markets guru Mark Mobius said on Monday.

Investments by hedge funds and private equity firms in pre-IPO companies, in addition to money from institutional investors, have increased liquidity in global markets, Mobius told the Reuters Investment Outlook 2007 Summit in New York.

Mobius, who spoke from Dubai, said markets have not reached a bubble stage and equity valuations have not become stretched, with the exception of certain markets, such as India's software and pharmaceutical sectors.

Next year is shaping up similarly to 2006, which bodes well for international and emerging markets, as "we're beginning to get a situation where people feel they missed the boat" after the rise in prices this year, he said.

China-region, Latin American and European funds all have returned more than 30 percent so far this year, according to data from Lipper Inc., a unit of Reuters Group Plc.

Investors also want to diversify their portfolios and hope to obtain higher returns than in the United States, Mobius said. A weak dollar also is pushing money abroad.
"We are seeing now increased international interest in non-dollar assets. That is why we are seeing more money in emerging markets," Mobius said.

If the perception of the international investor is that the United States is cleaning up its house regarding the government's debt load and the balance of payments, "we will see a reversal pretty fast."

Optimism is running very high, he said. The spread between emerging market debt and U.S. Treasuries has narrowed to about 2 percentage points, and the return on equity in emerging market stocks is now higher than prevailing interest rates, another sign of increased investment and investor interest, he said.

"Domestic investors are becoming more key to emerging markets. They look at things differently to maybe what we would be looking at," he said.

That interest also helps the emerging markets outlook, he said. "We have very little cash in our portfolio, an indication that we are still finding things to invest in," he said.

Mobius, who is often called the face of emerging markets investing, was in Dubai to meet clients and to look at companies, though he said he had not made any investments yet.

"We're looking pretty actively since stock prices have come down pretty substantially," he said. As an example, he said a few of the big property companies are down by 50 percent.

"That's not to say it's a time to buy, but it's an indication of what has happened," he said.

Mobius still likes oil companies because his team believes even if the price of a barrel of oil plunges to $30, oil companies can still make money. Mining companies are another favorite, he said.

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