Emma Wall: Hello and welcome to the Morningstar series, Why Should I Invest With You? I'm Emma Wall and here with me today is Mark Mobius, Executive Chairman of the Templeton Emerging Markets Group.
Hello, Mark.
Mark Mobius: Hi.
Wall: So you've been running money in this sector for several decades. Over that time, have there been any countries that have moved from emerging to developed?
Mobius: Yes, at the very early stage when we started in 1987, we had Greece and Portugal in the emerging markets group. Then they graduated to developed market status, and of course, now Greece has come back into the fold, as you know.
Wall: Looking forward then, who would you think are going to be the markets that do that transition in the future?
Mobius: It's quite possible that Korea may move into that direction. The index providers have looked at that very, very carefully. Taiwan might be in that category, but it's very difficult, because the range of incomes is very wide in these countries and usually emerging markets definition is based on per capita income.
Wall: Is that something that you'd consider when making investment decisions? Do you look for a country that's going to make that transition?
Mobius: Not really, because our main focus is on individual companies, regardless of where they may be. It happens that we are running emerging market funds where growth is very high and where company earnings growth is very high, so that's what we'd be focusing on.
Wall: Looking some of the news at the moment, there is a lot of political and civil unrest in the world in Syria, and in particular, Kenya over the last week. How much does that influence an investment decision? Even if you find a good quality company, is it sometimes just a no-go area?
Mobius: We don't make that decision very often. It's only when a government says, look, we are going to confiscate your assets or we are going to restrict foreign exchange, so we can't get money out. But to give you an example of Kenya, we would probably continue to buy and even buy more if the market goes down. Interesting thing is that, with all this turmoil, with this mall shooting in Kenya, the market has not gone down, which gives you some idea that investors have become much wiser and have not reacted so much to these incidents, because they know it's an isolated incident in such a big country.
Wall: In the Middle East, that's not so much the case, the sort of isolated instant. Does that mean that you're just not investing in the Middle East?
Mobius: No, we continue to invest in Egypt and all over the Middle East. Again, what we are finding is that you can have a lot of turmoil headline saying very, very negative things, but on the ground level, there are many companies that are still thriving, growing, and very profitable. So we have to be really focused on individual companies in these countries.
Wall: Looking then stock specifically, what are the drivers of the decision to make it into your portfolio, if it's not so much the macro?
Mobius: Well, first thing is management. Is the management fair to shareholders? Are they capable? Have they a proven record of success in growing earnings? Then we look at things like return on equity, return on invested capital, dividends; do they pay any dividends, because if they are not paying dividends, something is wrong, unless it's a startup or a company that's growing so fast that they want to use earnings for growth. Then we look at cash flow, what is the cash flow situation, and margins are, of course, very, very important. We want to see good profit margins.
Wall: Are there as many of those examples now as there were 10, 20, 30 years ago?
Mobius: There are more, because there are more stocks listed. Every year now in emerging markets is over $200 billion, $300 billion of new share issues coming in. So we have a lot more choices.
Wall: Mark, thank you very much.
Mobius: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
