Mark Mobius, founding partner of Mobius Capital Partner, has spent more than 40 years working in emerging and frontier markets, actively managing funds totalling more than $40 billion in assets. Mobius co-founded Mobius Capital Partners LLP this year, prior to which he worked with Franklin Templeton Investments for over 30 years. His tenure witnessed the group expanding assets under management from $100 million to more than $40,000 million and launched several emerging market and frontier funds, as claimed by Mobius Capital Partners on its official website. Before Templeton, he served as the chief executive of International Investment Trust and has been a prominent person in developing the international policy for emerging markets.
In an exclusive interview with CNBC-TV18 on Thursday, Mobius said that India is going to be the best market to invest in financial year 2019. He added that the country has an opportunity to stand out due to slowdown in China.
He spoke on a number of topics including Fed's rate decision, farm loan waiver in India and the assembly elections outcome.
Here is the full transcript of his interview:
Q: How would you parse the Federal Reserve’s statement as an emerging markets investor?
A: The Fed is going to continue with this disposal of all these assets that they had over these few years. So we can expect further rate hikes but it will be at a much slower pace in my view. Particularly since he ( Jerome Powell) used the word uncertainty and since he said that there is a possibility he would see the slowdown in the US economy. So that gives him the excuse to slow down on this programme that he had. I think the emerging markets generally have discounted most of that because many of the EM currencies have come down dramatically and of course with that the indices at various parts have come down. We have seen a very few recoveries - particularly in Brazil would be one good example but generally speaking I think a lot of it has been discounted.
Q: Like Chris Wood and many other analysts are pointing out, the Fed is not changing its quantitative easing wind down programme, is that something to worry or do you think emerging market currencies have already internalised that?
A: I think the EMs have generally internalised that. However, the general uncertainty gives people pause to pour too much money into EMs. We have seen some money coming in but not to the extent that we would expect given the very good growth outlook for EMs but yes, the uncertainty is there and therefore you are going to see a lot of people being very hesitant to put more money into the markets.
Q: The overarching themes seems to be the slowdown in growth, the Fed acknowledged that as well, do you think that there is a fear of a recession in the US markets at the start of the next year or is that fear unwarranted for now?
A: Very much so. I believe that there is a fear because the stock market is giving us a message, the S&P has slowed down, has corrected substantially and that is a signal to people that maybe something is going to happen. As you know, the political situation in America is very uncertain and you can have the uncertainty continue as the Trump investigations go forward. So this is also a reason to be very cautious.
Q: Let us come to India. In the past 10 days, since the Bharatiya Janata Party (BJP) government lost three state elections and the results came on December 11, since then we have put in about 600-700 points on the Nifty. Do you think we have risen too fast? I guess the response is to the fact that crude prices have now crashed to $56 per barrel for Brent and the Indian Reserve Bank of India (RBI) also is pumping in a lot of liquidity, do you think we have run too fast, would you buy even at current levels?
A: Yes, we definitely would. India looks very cheap and with the Brent down, this is very bullish for India. What is concerning to us is the political talk about the farmers loan forgiveness, which is a positive – of course it is very good for the farmers for the short-term but for the long-term, it is not a very good move I believe because it means that you are not looking at the basic problems, which is infrastructure and other aspects, which will help the farmers in the long run and then of course the angel tax is scary. These are concerns but they are relatively minor when you look at the overall situation in India looks quite bullish in our view.
Q: You said that you would buy into India now, do you think India would stand out and decouple from the developed market slowdown in 2019 or could India be also dragged down by the global growth slowdown that we might see?
A: I believe that India could decouple and move forward in lieu of the incredible growth rate of the economy, one of the highest in the world and of course among the major countries now India stands up with China slowing down, India has a good chance to standout.
Q: What part of India do you like? Let me start with financials since they are 40 percent of the big indexes, which part of the financials do you like?
A: I like the smaller banks, the non-bank financial institutions and the medium and small sized banks. There are some opportunities there. On a regional basis, you are seeing some interesting things happening. So that would be a place where we would look.
Q: You did speak about how measures like the farm loan waiver etc may not be the best thing for India at the moment but as we head into the elections, we may be hearing more of such populist measures, would that deter you from putting fresh money to work or would you use every dip to buy into India?
A: No, it wouldn’t deter because in the short-term, it looks very good but it is a disappointing move from a longer-term perspective because it means that politicians are not very focusing on some of the fundamental things and particularly, infrastructure in India needs a lot of work so that the farmers can get their products to work, that sort of thing is more and more important but in the short-term of course the loan forgiveness helps the economy and then you get a boost to growth.
Q: Since you speak about the divergence between a short-term gain from this kind of a give away and the long-term harm to credit culture. I just wanted to ask you about this huge liquidity boost that the RBI is giving, some Rs 2 trillion of bonds it is going to buy from December to March. Obviously in a bid perhaps to assuage fears of the debt problems of the NBFCs, do you think we will live to regret this? Sometime back we did similar liquidity infusions, we harvested inflation about couple of years down the line?
A: Of course, that is the price to pay. Now the only proviso is that if the economy picks up at a rapid pace then the government will be able to gather taxes in order to pay for this. However, otherwise definitely it is a real problem down the road for the government if they don’t achieve that high growth rate.
Q: So just over 100 days from now, we may or may not have a new government here in India, would that in anyway make you change your investment call?
A: Definitely, there will be a real problem. If you see the reforms that Modi has introduced dispose of, that would be a backward step. I believe that Congress party would not do that, they would probably continue but the populist measures are not a good medicine for the economy.
Q: Other than financials, what interests you, is it consumption, we are seeing incipient capex excites stocks like Larsen and Toubro (L&T), would that interest you?
A: What interests us is the consumer side because with this loan forgiveness of course you are going to see consumption skyrocket and you are going to see many opportunities in the consumer area. So I would say with the increase in consumption, companies benefiting from that would be on our target.
A: India is right at the top, which is why I am here now.
Q: What is your top market to invest into in the year 2019?