By Mark Mobius, manager of the Templeton Emerging Market Investment Trust February was a mixed m...
By Mark Mobius, manager of the Templeton Emerging Market Investment Trust
February was a mixed month for the emerging markets. After chalking up good gains since the last quarter of 2001, some of the markets paused for breath during the month.
During the month, the MSCI Emerging Markets Free index gained 0.4%, bringing the year to date gain to 3.7%. With valuations at or still close to their historical lows for many of the emerging markets, the good performance since October 2001 could be a sign of a return of confidence to the emerging markets and the start of a sustained period of a good performance.
During the month, the California Public Employees Retirement System (CALPERS) announced its decision to add Malaysia, Thailand, the Philippines and Indonesia to its list of non-investible markets because of these markets' poor corporate governance track records. CALPERS has whittled down its list of eligible emerging markets down to just Argentina, Brazil, Chile, Czech Republic, Hungary, Israel, Mexico, Peru, Poland, South Africa, South Korea, Taiwan and Turkey.
While we commend CALPERS' reasons for their action, we do not agree that taking these markets out of the investible universe is the best solution to the problem. We prefer instead to work with companies in these markets that are transparent and do respect the rights of minority investors and avoid companies that have violated shareholders' rights in the past. If all investors were to follow suit, then a corporate governance discount will eventually develop between the good and bad companies.
Emerging markets have had more than their fair share of problems in last few years, the most recent being the Argentina crisis.
However, we strongly believe that this year is going to be different. Improving macroeconomic performances in many countries, combined with a steady reduction in the risk associated with emerging markets, falling interest rates, and of course a clear improvement in investor sentiment towards emerging market investing should allow emerging markets to outperform.
After surging 53.1% in the fourth quarter of 2001, the Taiwanese stock market retreated during February, with the MSCI Taiwan index losing 8.2%. Taking a longer-term view, we believe that many Taiwanese companies are well positioned to benefit from the anticipated recovery in the US in the later half of this year.
As a result we will continue to monitor stock performances aiming to build positions in those stocks that we deem to be trading below their intrinsic value as well as disposing those we feel are reaching their fair value.
Unlike Taiwan, the Korean market continued its strong performance gaining 7.4%. With the continued recovery in technology-related stocks, we expect the fund to continue to benefit from its positions in Korea.
Mexico's macroeconomic stability and tight fiscal policy make it one of the best markets in Latin America. Further boosting investor confidence, international ratings agency Standard & Poor's upgraded the country's sovereign debt to investment grade.
Strong performance from Korea.
Improving macro- economic situation.
Clear improvement in investor sentiment.
Uncertainty of Argentina situation.
Poor corporate governance.
Countries still have many problems.
£300bn of liabilities
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