The Best Is Yet To Come:
Posted on: 10 Aug 2012 by James Farmer

Emerging markets specialist Mark Mobius has written a superb guide, says Michael Wilson. It’s just not quite clear who it’s intended for.

 The Little Book of Emerging Markets, by Mark Mobius. John Wiley, £15.99

 

Mark Mobius is the kind of person the word doyen was invented for. The founder of Sir John Templeton’s Emerging Market fund, the first to explore the so-called developing world in the late 1980s, the author’s fame has been well earned. Mr Mobius currently manages and supervises some $50 billion of assets, and he spends an incredible 300 days a year travelling the world in search of investment propositions.

The odd thing with this book is that it seems to take the author a while to really decide who he’s really talking to. The book starts out addressed to the private investor, but it pretty soon becomes clear that his themes are more relevant to the very experienced investor – or, more probably, the fund manager or adviser. That’s not to say, of course, that the guide is of no use at all to an amateur investor – far from it, he gives some amazing insights into the way that portfolios are balanced, risks assessed and macro factors read and handled. So let me say this clearly. Do recommend this book to your clients. But make sure they get past the first thirty or so awkward pages, because that’s where the good stuff is.

A Professional Direction

Awkward, did I say? Well, yes, and here’s how. Mobius opens the introduction to the book with the usual IFA’s assurance that there’s no point in trying to time the market because it’s simply impossible – and that the time to pile in is whenever you’ve got some money. Then he mixes his message with a lengthy (and, alas, alarmingly accurate) description of the switchbacking, political and cyclical behaviours of many emerging markets that would probably make a typical reader think that perhaps a spot of market timing might be jolly well worth a shot after all. Hmmm….

It becomes clear soon enough that the book works better as a punter’s guide to  what his fund manager does for a living, because much of the subject is somewhat out of the general run competence for mere amateurs. Having galloped through the managed funds sector in the space of five pages or so, Mobius turns his attention to detailed stock-picking issues and doesn’t really deviate from that path from then on.

We are advised, for instance, that when investigating an emerging market stock we must talk to the company’s accountants, make sure we have the very best profit forecasts and if possible to make a site visit or two. None of which is going to be very easy from an armchair in Luton.

Superb Examples

But, just as we’re starting to get a bit restless about this rather vague and professionally-oriented discourse, something rather wonderful happens. Up until this point Mobius has been quite infuriatingly vague about the specifics of his craft – for instance, he’ll tell you about a past political experience with an unnamed Asian despot without telling you the country or even the decade that he’s talking about. And just as you’re tearing your hair, he produces three absolutely perfect illustrations of situations where macro risks have been interpreted, learned from and profited from in exemplary style.

The Brazilian currency crisis of the 1990s was an object lesson in how hot money and botched currency controls can damage the fiscal and trade balance. The Thai bounce-back after the 1997 Asian panic is a fine illustration of how personal experience on the ground can help a professional investor get ahead. And Mobius’s description of the recent Russian comeback will stir and terrify you in equal measure.

Along the way, Mobius’s book is full of off-the-wall insights. When China’s property market overheated in 2009, he says, the west misread it because we were expecting a flood of subprime mortgage disasters, as in the US. They didn’t happen because surprise, surprise, China has no subprime mortgages. His insights into bank funding and capitalisation are stunningly simple, and accurate. His appraisal of currency risk (including hedge fund arbitrage) is right on the money. And Mobius is endearingly honest about his goofs, especially in the early days, as well as forthright in his views about what has been learnbed.

In short, this book is a first-class primer for anyone who wants to understand what makes emerging markets tick. It will deepen your clients’ appreciation of what fund managers do for a living, it will map out the basics of macro-economic and political issues with regard to the wilder and woollier parts of the world, and it will add to the depth of your own understanding as an adviser. Urge your clients to read it. But tell them to persevere. The rewards are well worth it.

Tags: accurate description | adviser | amateur investor | behaviours | developing world | doyen | emerging market | emerging markets | good stuff | john wiley | macro factors | mark mobius | market timing | michael wilson | mr mobius | private investor | professional direction | sir john templeton | typical reader | worth a shot