Emerging markets like Ukraine, Venezuela, and Argentina are grabbing the headlines. However, Mark Mobius, Executive Chairman of Templeton Emerging Markets Group, sees potential not only there but in a group of emerging markets known as frontier markets – smaller economies that may offer opportunities for investors.
Mobius, who oversees nearly $50 billion in emerging markets, believes three countries are worth a look – Romania, Vietnam, and Nigeria. In the second of a two-part interview with Talking Numbers, he gives his take on each one.
Romania is a country Mobius is quite familiar with; Templeton manages Fondul Proprietatea, a closed-end fund established by the Romanian government to compensate those who had their property confiscated during the communist regime. Fondul Proprietatea, the country's largest fund, trades on the Bucharest Stock Exchange with a net asset value of roughly $4.5 billion.
Mobius sees three things that in Romania's favor: oil resources, Black Sea access, and European Union membership. As part of the EU, Romania now has to commit itself to weeding out corruption, according to Mobius.
"All these countries that were communist were really, deeply corrupt," says Mobius. "To get out of that kind of mentality and to get out of that kind of system is not easy. You have to work at it and that's what we're doing. We're trying to bring these companies that we have in the portfolio into the modern world… And, I must say, the progress has been incredible."
The Fondul Proprietatea's results are proof of that progress, according Mobius. "The returns on this fund have been very gratifying," says Mobius. "When we listed it, the discount to its net asset value was something like 70% - 80%." The fund now trades at a 35% discount to its NAV.
Another country that is making as transition from a communist economy to a market-based system is Vietnam, a country that is still technically a "socialist republic".
"Very much like Romania, they're going into this transition from a communist society to a capitalist or market-oriented society," says Mobius. "There are many companies there that are very cheap. Managements are quite good. The country's growing at a fast pace."
The country's Southeast Asian location near China is also an advantage, says Mobius. "And, you've got a very hardworking, smart population."
Oil-rich Nigeria is another country Mobius sees opportunity in, particularly with it financial industry.
"You've got certain segments of the society that are doing well and are doing things properly," says Mobius. "The banks are very well-regulated. Of course, they had a banking crisis. They cracked down on the bad practices of the past and now these banks are running in a proper way."
Mobius credits banking reforms to Mallam Sanusi Lamido Sanusi, the Central Bank of Nigeria's governor who was removed by President Goodluck Jonathan last week on accusations of "financial recklessness and misconduct". But, President Jonathan's claim may have been motivated by something else; for several months, Sanusi had been leading the charge against the state-run oil company NNPC, saying as much as $50 billion were not paid to the country's treasury.
Nonetheless, Mobius is optimistic about frontier markets in general. "It's not easy," he says, "but there are still opportunities in these countries."
To see the rest of the interview with Mark Mobius on frontier markets, watch the video above.
For the Talking Numbers interview with Mark Mobius on emerging markets, click here.