The US markets have provided a lot of stress to investors this year. And while the performance of indices in Europe and the United States has been poor, the performance of emerging market indices has been worse. The US dollar is also reaching its highest level since 2003 and has negatively affected the performance of emerging markets. Investors noted that The recent declines have brought valuations in emerging markets to historically cheap levels.
Mark Mobius, who is considered an authority in the field of investing in emerging markets, and even helped build Franklin Templeton’s emerging markets business, claims that even though the general tone was negative this year, there are many opportunities to be found in emerging markets.
The underperformance of the emerging markets compared to the American market is nothing new, the MSCI emerging markets index includes shares of companies from the 20 largest markets in the world such as: Asia, Latin America and Africa, it fell by 18% compared to the S&P 500 which fell by 13% . Over the past 10 years, the MSCI index has risen only 36%, while the Snoopy has jumped 264%.
Past performance does not dictate future returns, says Mobius, now investment attitudes around the world have evolved. When it comes to individual countries Mobius said he favors India and also sees opportunities in Kenya and South Africa among the smaller emerging markets. When it comes down to the resolution of companies, Mobius says he looks for companies with strong pricing power and little or no debt.
One of the things that clouded the emerging markets from the beginning of the year was the financial crisis in Sri Lanka, which raised fears that similar markets could fall in a similar way, since the strong dollar and high commodity prices weighed heavily on countries that mainly import commodities such as oil or grain. Although there are some exceptions who actually benefited from the increase in commodity prices. Among other things, the currencies of energy producers Mexico and Brazil held up exceptionally well.
The Asian continent has the largest share of publicly traded companies included in the MSCI index. Taiwan Semi Conductor
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the semiconductor giant, is a key link in the global technology supply chain and has the largest weight of all the companies in this index.
Chinese stocks performed particularly poorly in the past year, when investors aggressively sold the country’s technology stocks amid the Communist Party’s tightening of regulations against the technology industry, through fines, restrictions and threats, to the point of fear of delisting from the American stock market. As a result, the stock index of Chinese technology shares (KWEB) has fallen by more than 23% since the beginning of the year.
Despite this, Mobius is also positive regarding these companies. He expects Chinese tech stocks to recover soon, but says new and foreign investors should be careful with Chinese stocks. “There will be some recovery in the Chinese technology sector, but the general trend of the market is not good in China in light of the problematic situation in the real estate market.”
Mobius also referred to Nancy Pelosi’s visit to Taiwan, and was asked if he was concerned about the danger that this would increase tensions between Taiwan and China, he responded that “the effect will be increased tension between the US and China on all fronts: trade, investments, education and more”.
Moving on to the discussion of stocks in the US markets, Mobius is less optimistic, despite the recovery of stocks last July. “There will probably be more declines while the Fed continues to raise interest rates,” he wrote. “I expect interest rates to continue to rise and that means certain companies will be in trouble, especially stocks Speculative technology that fails to generate profits and depends on debt and fundraising.” Mobius added that in his opinion we will not see a bottom until there is capitulation, which is the surrender of the buyers.
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