In the past year, the fundamentals for key emerging market economies has improved. Most experienced ...
In the past year, the fundamentals for key emerging market economies has improved. Most experienced positive economic performance and higher growth rates. The prospect of EU membership has continued to encourage Eastern European economies to strive for better results.
However, these positive economic growth developments have not been reflected in the emerging country stock markets. Since the beginning of 2000 most have fallen markedly, with Asian markets being hit the most. One explanation for the poor performance can be put down to government meddling. Another is the psychological worries and lack of interest that has more to do with sentiment than underlying economic fundamentals, although changes in the oil price and the technology correction did make an impact.
Looking forward in Asia, we expect capital flows to increase in 2001. However, there may be new opportunities in countries that have not fully recovered and whose markets are cheaper.
Countries such as Thailand and Indonesia may attract additional capital. China too will continue to attract foreign investment as it expects to complete all outstanding arrangements to ensure its accession into the World Trade Organisation by the first quarter of 2001.
Positive effects from this could flow into the Hong Kong and Taiwan stock markets. Diminishing political turmoil in South Korea should improve investor sentiment and allow the government to focus on structural and economic reforms. Most Asian economies have displayed great determination in bringing their economies back from the low levels of growth and activity experienced during the crisis.
In Latin America we expect to see continuing improvements. The Mexican economy continues to display strengthening fundamentals. Brazil continues to attract foreign investment by reducing taxes and red-tape restrictions and streamlining foreign exchange laws. We remain positive on Mexico and expect the strong fundamentals to underpin stock prices.
On the African continent, we expect South Africa to steadily gain in international standing and influence. South African companies are now beginning to see the benefits of recent efforts to streamline operations, which could reap benefits going forward. We continue to favour South Africa due to the growth potential of the market and the quality of the managements we find there.
In many emerging markets, valuations have fallen to very attractive levels. We are now able to buy companies at a fraction of what we consider to be their true values. Many of these companies continue to operate profitably in spite of the challenging economic conditions they may face. We therefore feel that the present discounts on stocks in the markets are unwarranted.
Mark Mobius is head of Templeton Emerging Markets Investment Trust
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