David O'Byrne in Istanbul -
In the unlikely event that the global financial system crashes, Mark Mobius - once dubbed "the pied piper of emerging markets" - is unlikely to be stuck for a new career.
Speaking at a recent conference on turning Istanbul into a global financial centre, Mobius proved that he is both never stuck for a response and can flip out one-liner's pithy enough to send comedians reaching for a notebook and pen. "What's the best time to invest?" he asks, "How about when you have money!"
A flip line perhaps, but one which neatly encapsulates wise advice within a wisecrack.
But then turning the arcane world of emerging market equities into a source of both comedy and good solid documentary fact is a rare skill and one that Dr Mobius performs with the same aplomb with which he has successfully piloted Franklin Templeton's emerging markets funds for the past 24 years.
Brushing over an incident where one unimpressed Scottish investor had - either by mistake or by jest, referred to him as "Dr Dubious", Mobius pulls out a wealth of statistics to back his assertion that emerging markets are where we should all be putting our money. "One of the key reasons we are in China, in Turkey and in other emerging markets is their incredible growth," he says, pointing out that most projections foresee emerging markets this year growing at three times the rate of developed countries, with China expected to grow 8.9% this year and India 8.6%.
That history of rapid growth, he explains, has seen the emerging markets percentage of global market capital grow from 10% in 2001 to 15% today, figures reflected in the percentage of global IPOs taking place in emerging markets, rising from 10-15% over the same period.
But it is the performance of emerging markets during and after the recent global economic crisis that Mobius says is most impressive.
Catching up fast
Having lagged the US in the value of IPOs in 2008-09, last year saw the total value of emerging market IPOs exceed $450bn, more than double the $190bn in the US - an important consideration for the head of an investment fund that invests in emerging market stocks.
And that performance, says Mobius, won't recede any time soon. Emerging markets, he points out, have a combined population of 5.6bn, over four and a half times the population of the 1.2bn of the developed countries, but with GDP per capita which ranges down from a quarter of that of the developed west, and yet which grew by 87% between 2005 and 2010.
Digging deeper into his store of statistics, Mobius tells bne that those growing populations with their growing disposable incomes want the same goods as those in the west. Percentages of refrigerators and washing machines per household in rural China? Low but growing quickly - he explains, good news for anyone investing in manufacturing and commodities. "Commodities are on the up and will continue," says Mobius. "We've been investing in copper mines all over the world."
But Mobius is also quick to point out the possible risks in the wake of the crisis. "The US, the Eurozone and Japan have been printing money and pumping it into the system - if that changes and they suddenly stop, that's a risk," he says.
In addition, he warns that regulation remains a huge problem, citing the failure of the Basel III accord to significantly reform banking regulation, the abandonment of mark-to-market accounting and the failure of the US to re-institute the Glass-Steagall act, the absence of which has allowed retail banks to gamble depositors' money on risky derivatives deals.
According to Mobius, those derivatives remain the biggest risk to global financial stability. With a value of $600 trillion - 10 times that of the global economic output - the unchecked growth of the global derivatives market represents a huge systemic risk, and one which still has not been properly addressed. "That's what got us into this mess," he says. "It's the elephant in the room, and it still hasn't properly been addressed."
But while he warns that improper or insufficient regulation threatens the stability of global markets, Mobius also advises that correct legislation holds the key to Istanbul's hopes of becoming an international financial centre (IFC) - identifying banking legislation and taxation as key issues needing to be addressed. "With banking confidentiality laws similar to those of other financial centres, it will be possible to attract funds from all over the region," he explains, adding that taxation rates for companies and individuals working in the IFCs would also need to be competitive.
Mobius also identifies increased public listing of companies as key to boosting foreign investment and hence Istanbul's chances of becoming a regional hub for investment. "We would like to see more state-owned companies becoming listed - this means privatisation of state-owned enterprises and activities should be accelerated," he says.
But while the Turkish government seems unwilling to overhaul a tax system that has supported the country's recent meteoric growth - despite its obvious inconsistencies - it has at least embraced privatisation, with sales of the last of the state-owned power distribution companies ongoing and sales of the state-owned power plants just commencing.
Which judging from the interest shown has been enough to satisfy local investors, but it still remains to be seen to what extent it can help fulfill the ambitions of making Istanbul an global financial centre.
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