Investment Companies News

Mark Mobius, manager of the Templeton Emerging Markets investment trust, said strong economic growth and low inflation continue to support the outlook for emerging markets but investors should be prepared for greater volatility.

The trust had a strong six months, despite volatility towards the end of the period caused by the credit crunch. The net asset value at 31 October was 548.2p, representing a rise of 52.6%. This represents a substantial outperformance of the MSCI Emerging Markets index and the S&P/IFC Investable Composite Index, which returned 34.72% and 33.58% over the same period.

Emerging markets were among the strongest performing markets globally over the period, as they reduced their historic dependence on the US and benefited from strong macroeconomic data. The second quarter was weaker as the worsening credit and consumer conditions in the US hit worldwide investor confidence. The interest rate cuts calmed markets, though volatility spiked up again in October as tensions mounted between Turkey and Iraq.

Asia was the best-performing region as China and India continued to attract fund flows into the region. Mobius took selective profits in the region to raise funds for the buy-back programme. He reduced his holdings in China ‘Red-chip’ shares, Malaysia, Taiwan and South Korea.

Mobius also took profits in South Africa. Returns from emerging Europe and Africa had been disappointing in emerging market terms, but still recorded positive returns. Turkey outperformed global markets as interest rates fell.

In Latin America, the Brazilian market reached a record high in October on the back of accelerating economic growth and high foreign investment flows. GDP growth rose 5.4% year on year and credit rating agencies issued upgrades.

In sector terms, the sales in Asia reduced the trust’s exposure to wireless telecoms, marine ports and services, semiconductors, tobacco and industrial conglomerates. Mobius selectively increased his exposure to commodities, as prices look set to remain high. His purchases included National Aluminium, India’s largest alumina manufacturer, Sesa Goa, an India iron ore exporter and South Korean refining group SK Energy.

The trust currently trades on an 8.8% discount to net asset value. Shares dropped 2.5p to 480.25p. After an exceptionally strong year and with global growth weakening, now is probably not the best time to be investing in emerging markets. However, Mobius is considered one of the great emerging market investors and the current discount offers an opportunity to buy in at cheaper levels.